Budget 2016: NPS & pension product should get separate tax break of Rs 1lakh

Sanjay TripathyHDFC LifeInsurance industry plays a very important yet underappreciated role in the economic development of a nation. It is a key aggregator of disciplined savings leading to a financially independent life. As per the latest IRDAI annual report, the life insurance premium in India increased by 1.0 percent (inflation adjusted) whereas global life insurance premium increased by 4.3 percent. The level of penetration has declined in the last 5 years to 3.3 per cent in 2014. However, the Government has taken several steps during the last 18 months to promote the concepts of insurance as well as to attract long term FDI into the sector.Through the Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Fasal Bima Yojana & Atal Pension Yojana, the awareness and penetration of insurance & pension plans should surely improve, especially among the marginalised sections of the society.The current limit in section 80CCE allows for deduction up to Rs 1.5 lakh in a combination of short-term and long-term products. We propose that a separate limit of up to Rs 1.5 lakh be considered exclusively for investment in long term financial instruments like life insurance. The life span of Indians has been increasing and there are only limited welfare schemes for the welderly available. Last year's budget gave an additional tax benefit on investments of up to Rs 50,000 a year under the National Pension Scheme only. I suggest that specific tax breaks to be extended up to Rs. 1 lakh to include all retirement plans to encourage more and more people to plan for their retirement.Additionally, I recommend the Government to also exempt national pension system (NPS) withdrawals from tax, bringing it at par with the employee provident fund (EPF) scheme to provide a level-playing field. This has also been recommended by the seventh pay commission. Annuity should also be exempted from income tax.Life insurance allows individuals and institutions to undertake economic activities that they would normally not undertake in the absence of risk management tools. The long term nature of the liabilities and stable stream of premiums acts as an institutional investor that not only provides capital to infrastructure but also a professional oversight to these investments on behalf of policyholders. It would be helpful if the Government kept aside a greater corpus for the promotion of insurance coverage. Any growth in the life insurance penetration would have a multiplier effect on youth employment and will also provide the much needed insurance cover for individuals.Expectations continue to be high from the Indian Government and one hopes that government will use this opportunity to continue driving home institutional changes to propel India’s growth even as the global economy continues to struggle.