Rajeev KumarIRDA’s increased focus on insurance awareness coupled with the launch of various social security schemes by the government, the future of the insurance industry in India looks promising. The recent changes in the regulatory framework and changing perspective of the masses towards social security are steps in the right direction. Here are some of the areas, which the government could consider addressing in the upcoming Union Budget 2015.Currently, for income tax computation, deduction for life insurance products is covered under the overall limit of INR 1.5 lakh along with other investments and contributions. Government should consider a separate deduction for life insurance premium. This will help improve insurance penetration, boost the growth of the industry, which in turn will contribute to the strengthening of social security measures in the country. Proceeds from life insurance policy are tax free under 10(10D) with a condition on the percentage of premium vs the sum assured. The intent is to encourage long term investments. However, this condition becomes unviable for older people as the annual premium increases with age. Thus the condition should have a minimum term of 10 years in the policy as a criterion instead of the annual premium as it becomes less favorable for consumers buying policies at an older age. Also single premium policies with term of 10 years or more will qualify for exemption, which is taxable now. In the absence of significant social security measures and when Government is looking in that direction the exemption of service tax on pension policies will be a welcome step. This has been on the anvil since quite some time now. Also the additional deduction of INR 50000 under section 80CCD for contribution to NPS should be extended to pension policies sold by life insurance companies.Currently, the service tax chargeable for traditional policies is 3.63% on the first year premium and 1.81% for the subsequent years. This leaves taxation on single-premium policies in a grey area. Right now, insurance companies are levying first year service tax rate of 3.63% for single-premiums. There needs to be a separate tax structure on single-premium policies to avoid unnecessary burden on policyholders. Recently introduced Swach Bharat Cess (SBC) has increased the cost of business as set off for the SBC paid on input services are not allowed. Government should re-look at it.There has been a lot of anticipation on the introduction of GST. If GST is implemented in its current form, it will affect the life insurance companies both from a policy and an administrative cost perspective. So, it is recommended that either Life insurance service should be kept out of the ambit of the GST or if included, should be zero rated with refund of GST paid on input services.The benefits of all the above steps will go majorly to policyholders and will make the life insurance policies more attractive, as such there should be an increase in the demand. The very intention of the Government of India to give support to the industry to grow can be translated into reality by taking the above steps and many more. We are confident that these will result in better penetration which can be a very effective tool in helping the gradual improvement in the social security measures in India.Author is chief financial officer of Bharti Axa Life Insurance
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.