The life insurance industry has recommended the government to create a separate bucket for tax rebate under section 80 (C) and make annuity tax-free for the benefit of subscribers as part of its demand for the next Union Budget to be unveiled in February.
The Rs 1,50,000 limit for tax rebates is a pretty cluttered bucket and it does not give much space for the life insurance premiums (to get the full benefit of tax exemption), Karthik Raman, CMO and Head – Products, Ageas Federal Life Insurance, told PTI.
"We want to create a separate bucket from the tax benefit in terms of rebate because section 80 (C) has a limit of Rs 1,50,000 and everything comes under that like PPF is part of it, and if one has a home loan then for all practical purposes, it is gone. So, we would like to have a separate amount of money earmarked for investment in life insurance for tax rebates," he said on behalf of the industry.
Finance Minister Nirmala Sitharaman is scheduled to present the general budget for the next fiscal on February 1. Also, the industry would like the annuity products to come under tax rebates.
Today, the annuity at the hands of the receiver or annuitant is taxable. An annuity is viewed as salary and hence it is taxable. However, typically annuity is received by people who are moved out of the regular source of income and they look at an annuity as an alternate source of income.
"The cost of living is only going up, and taxing them doesn't sound right. We are requesting (the government) if an annuity can also be considered under Section 10 (10D) and can be made tax free. Section 10 (10D) of the Income Tax Act allows an exemption for life insurance benefits including bonus. These are the two things the industry would be very happy if the government could consider," Raman said.
He urged the government to make a beginning in that direction and to start again from where it had left it before the insurance premium was merged under the overall tax exemption limit of Rs 1,50,000 under section 80 (D)."So, a separate bucket can be created for the life insurance (premium). And the next year and going ahead if the government feels that it is an important investment, and considering the kind of impact the pandemic had, it would encourage people to look at life insurance as a correct investment," the official said further.