Ahead of the Union Budget 2023, insurers are hoping that the Centre will act on their recommendations, which includes increasing the limit for tax deduction under 80D of the Income Tax Act.
Also among them are issuance of long-term bonds, tax incentives for home insurance premiums, and a separate section to claim deduction for term-insurance premium, among others. These suggestions would help improve the penetration of insurance in the country.
Further, another long-standing demand is rationalisation of goods and services tax (GST) on insurance products.
For the last few years, insurers have been recommending to the government to increase the limit of tax deduction under 80D of the Income Tax Act.
Under this section, a person can claim a deduction of up to Rs 25,000 for health insurance premium and expenses incurred towards health care. A maximum of Rs 50,000 can be claimed for deduction under this section if the person is paying health insurance premium for his/her parents also.
“In view of the inflation, the current maximum limit of Rs 50,000 may be increased to Rs 1 lakh in order to induce people to take adequate insurance cover.
Further, deduction of health insurance premium under u/s 80D should also be allowed under the new tax regime,” said Rakesh Jain, chief executive officer (CEO), Reliance General Insurance.
“We certainly would like to see more benefits on taxation as it will act as an impetus for a larger populace to insure themselves and their family,” said Bhargav Dasgupta, managing director (MD) & CEO, ICICI Lombard General Insurance.
Meanwhile, the insurance sector and the insurance regulator have suggested that the government look at issuing long-term offering deferred liability long-term bonds (up to 50 years), which the life insurers can subscribe to and support the government’s growth initiative.
Also, the government could consider issuing partly-paid bonds, which will help the economy in mobilising long-term funds, they said. This is because life insurers, who are long-term investors, will subscribe to them for effective asset-liability management.
Among other things, insurers have asked for the benefit of a reduced tax rate of 10 per cent on long-term capital gains (LTCG) above Rs 1 lakh to be extended to the insurance sector.
They have also sought tax incentives on premiums paid for home insurance under chapter VI A. This would help promote home insurance, whose uptake is abysmally low in India.
Chapter VI A of the Income Tax Act contains various sub-sections of Section 80. This allows an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures and donations, among others.
Further, life insurers have asked the government to waive off taxes on proceeds of pension or annuity.
Alternatively, they have suggested that a separate bucket for pension in the range of Rs 50,000-75,000 could be created. This would help level the playing field with the National Pension Scheme (NPS). They have also asked for a separate bucket for deductions towards term-insurance premiums. This will incentivise people to buy protection for themselves.
“We request the government to bring life insurance Annuity or Pension products on a par with NPS, especially from a tax deduction point of view. This, we believe, will help citizens plan for regular income during their retired years, in an effective manner,” said Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance.
“Section 80C of the Income Tax Act is currently cluttered with several investment options such as life insurance premium, public provident fund (PPF), equity-linked savings scheme (ELSS), National Savings Certificate, NPS and principals on home loan, among others. If you are a salaried employee, most of it goes into EPF and PF. So, we would recommend a separate bucket for life insurance policies or an increase in the limit from Rs 1.5 lakh to Rs 2-2.5 lakh. At least, a separate section for term policies would be helpful, given the huge protection gap in the country,” said Vignesh Shahane, MD & CEO, Ageas Federal Life Insurance. Moreover, life insurers have asked the government to take back the decision to impose taxes on maturity of unit-linked products (ULIPs) with an aggregated premium of Rs 2.5 lakh. This has disincentivised big-ticket investments in the segment.
Further, insurers have sought raising the tax deduction at source (TDS) exemption limit on insurance commission (under Section 194 D of the Income Tax Act) from Rs 15,000. This will provide greater impetus to insurance agents, they added.
Source By https://www.business-standard.com/article/pf/budget-wish-list-insurers-ask-for-increase-in-tax-deduction-limit-123011801057_1.html