Make TDS threshold on agent commission Rs 50k: Max Life

Rajesh Sud
Max Life Insurance

With strong fundamentals the Indian economy has tremendous growth potential. However a right balance and more concentrated efforts to channelise resources for growth in an inclusive manner must be made to initiate this growth. The current government has shown intent in the right directions but the Union Budget must turn them into actions to make a difference. 

Indian economy - Health

Fiscal deficit is a big concern for Indian economy currently and the government should try and control the fiscal deficit through reduced government expenditure and creating increased revenue opportunities

• The government has been unable to meet disinvestment targets and should focus on bringing back the private investment gradually to lift sustainable growth.
• Households seemed to have favoured investment in valuables, such as gold, this created pressure on our currency exchange rate due to high imports of gold and also worsened the fiscal deficit of the country and hence, needs to be reversed.
• While the whole sale price index has stabilized the consumer price index is still in double digits. Removal of subsidy on diesel prices and increase in prices of other commodities may have further impact on inflation. Balancing inflation and growth is a big challenge before the government.
• There has been a decline in the average saving rate since 2008-09. RBI estimates show that the net financial saving of the household sector declined further to 7.8 per cent of GDP at current market prices in 2011-12 from 9.3 per cent in the previous year and 12.2 percent in 2009-10. The moderation in the net financial saving rate of the household sector during the year mainly reflected an absolute decline in small savings and slower growth in households’ holdings of bank deposits, currency as well as life insurance funds
• Keeping this in view of dented disposable income in the hands of individuals, Finance Minister should provide relief in income tax burden to individuals especially in lower tax bracket so that household savings rate could be maintained
• In a country like ours, there is also a constant need for better physical infrastructure, higher quality education and better skilled labour. Therefore, the Government should continue its focus on assured employment programs, infrastructure programs related to roads, power, irrigation and ensure easy access to health and education.

Suggestions on core issues related to life insurance, in the proposed union Budget are as mentioned below:

Budget Changes:

Direct Tax:

A) Personal Income-Tax

• India’s insurance penetration has dropped further to 3.4% in FY12 (vs. 4.4% in FY10 and 4.2% in FY11 (Swiss Re); expected to fall further to ~3% in FY13).
• Promoting long term savings habit by providing separate limit for Life insurance premiums under section 80C of Rs. 1,50,000 within overall enhanced limit of Rs. 3,00,000 will help in not only increase life insurance penetration but at the same time Galvanizing long term investment funds for infrastructure
• Currently payment towards pension is a part of 80C and annuities are also taxable. There is no additional incentive for individual investors to put money in the Pension segment. With the average life span of Indians increasing and the absence of social security along with inadequate retirement savings (provided by employers/ government) a separate limit of Rs. 1,00,000 must be created and tax on annuities must be abolished to strengthen pension inflows

B) Corporate Tax

Indian life insurance market is facing numerous challenges for growth and is among the least profitable across Asia. The Budget should address issues that will help make this industry attractive for both policyholder and shareholders. Corporate tax is currently governed by Section 44 along with rules contained in the First Schedule of Income Tax Act, 1961. Accordingly, tax is calculated @12.5% basis Actuarial Valuation made in accordance with Insurance Act, 1938. This levy of taxes, directly or indirectly, on amount to be received along with effect of inflation considerably reduces the value of money for policyholders. We propose Corporate tax be calculated basis profits disclosed in Shareholders Account @12.5% prepared as per IRDA.

C) Indirect Tax

• We propose service tax New Business (Other than Single Premium) /Renewals be @1% to bring parity with other financial products like Fixed Deposits wand Mutual Funds etc.
• Presently, service tax is paid on due or receipt of amount whichever is earlier. However, some of amounts due are never received; similarly amounts received in advance with proposal are not converted into policy. Considering the nature of Life Insurance, service tax liability should be on the basis of receipt of amount and subsequent conversion as premium

D) Other Suggestions

• TDS threshold on Agents commission should be to Rs. 50,000 since most of Life Insurance Agents are now in a low income bracket and increase in limit will result in less administrative burden on tax department while processing refunds. Agents also will have more disposable income.
• Service Tax threshold exemption should be extended to Life Insurance Agents to iron out disparity with other financial products distributors
• Currently, TDS has to be deducted at the time of credit of such income to the account of payee or the payment thereof whichever is earlier. Accordingly, TDS is paid even when commission is reversed in case of free look cancellation of policy. We request to allow adjustment of TDS deposited where the services are not received on the lines of Service Tax provisions whereby assessee is allowed to adjust the excess service tax amounts against his subsequent liability.