TAX SOPS TO INSURANCE MAY BE IN THE OFFING To improve insurance
penetration in the country and encourage savings, the finance ministry
may offer some tax breaks to the insurance industry in the coming
Budget. A higher tax deduction could be provided for investment in
insurance policies. Also,
separate investment limits have been proposed
for life and health insurance premium. Currently, Section 80C of the
Income Tax Act allows certain investments, including insurance premium,
up to Rs 1,00,000 to be deducted from total income. Officials said if a
separate category was made for insurance, taxpayers would invest more in
these schemes to avail of tax benefits. Currently, one can invest the
entire Rs 1,00,000 in any of the saving instruments specified under
Section 80C. Besides insurance, these instruments include investments in
Public Provident Fund, mutual funds and small savings. Deduction of up
to Rs 35,000 is provided on health insurance premium (Rs 15,000 for
self, spouse and children and Rs 20,000 for dependent parents who are
senior citizens). However, there is no separate category for life
insurance, which has penetration of just 4.4 per cent in India. For the
non-life segment, penetration is only 0.71 per cent. At 5.1 per cent,
overall insurance penetration is less than the global average of 6.9 per
cent. Pension products offered by insurance companies may also get tax
relief on a par with the New Pension Scheme (NPS), over and above the
limit of Rs 1,00,000 under Section 80C of the Income Tax Act. This means
the amount invested in these instruments, as well as the returns, would
be exempted from tax. Reduction in service tax on first-year regular
premium as well as single-premium policies and exempting annuity
policies, social security insurance schemes such as Janashri Bima Yojana
and Aam Aadmi Bima Yojana and micro insurance policies from service tax
might also be considered. The revenue department might also explore the
possibility of assessing service tax on a realisation basis. Currently,
service tax is levied on premium on an accrual basis. It may examine in
case changes are made to direct tax laws, these would only apply on
policies issued prospectively. Deduction may be allowed on contributions
made to post-retirement medical schemes offered by insurance companies.
Non-life insurance companies have asked for non-applicability of
minimum alternate tax on a par with that on life insurance companies. In
2000, up to 26 per cent foreign direct investment was allowed in the
insurance sector. Today, there are 21 private companies in the general
insurance space and 24 in the life insurance segment. –
www.business-standard.com