Increase tax exemption limit on people: Life insurers

Mumbai: With the Budget 2010-11 around the corner, the life insurers have put forward their wish lists. The Life Insurance Council (LIC), the official representative body of the life insurers had recently met the standing committee on finance headed by former finance minister Yashwant Sinha to submit proposals for the Budget.

The LIC has proposed allowing Rs 1,20,000 of premium from life and health insurance policies to be exempted from tax.

Currently, a total of Rs 1,00,000 of investment, including the life insurance premium is eligible for tax exemption. Another Rs 20,000 of health insurance premium is also eligible for tax exemption.

The Draft Tax code(DTC) which may be implemented from March 11 has suggested an amount of Rs 50,000, including health insurance and tuition fees should be given tax exemption.

“Tuition fees should be separated from insurance premium as there is no co-relation between them,'' said LIC adding that alternatively government should allow...deduction for policies with 10 year maturity.

The life insurers also have a separate limit for deductions under Section 80C for long-term saving instruments like life insurance. Currently, the deduction under Section 80C also includes short-term saving instruments like some mutual funds and fixed deposits. Life Insurance and Pensions are the only segments of financial services that address the needs of individuals in the long-term. Hence, the government should look at encouraging people to save for long-term by providing a separate limit for long-term savings, said TR Ramachadran, CEO & MD, Aviva India “Insurance business is a long-term gestation business. Currently, we are allowed to carry forward losses for only 8 years. Most insurers do not make profit even in the 10th year. Hence, we recommend that the period for carry forward of losses is increased to 12 years, said Ramachandran.

The insurance industry in India is at a..nascent stage and taxing the maturity proceeds will adversely impact the life insurance business and the industry. It will discourage investors to invest in long-term savings as it may result in unjustified tax burden especially on those customers who do not avail the benefit under Section 80C. Amitabh Chaudhuri, MD & CEO, HDFC Life said, “I would like to see some changes in the DTC which may include to have clarity on the yields. The minimum guarantee on return in case of pension fund has got no relevance and hence I would like that it should be made an optional and the choice should be given to the customers.