In a first ever move by the finance ministry to seek life insurers view on taxation issues, it has invited suggestions from life insurance companies for making changes in direct and indirect taxes for the sector, to be considered in the Union Budget 2013-14. In a letter to the Life Insurance Council, the ministry has called for suggestions and views for changes in the duty structure, rates and broadening of tax base, giving economic justification for the same.
This is the first time that our views are being taken into consideration for deciding taxation matters for the industry. Though there are varied views, it is a welcome step for the industry, as all suggestions will be considered, said a senior official of a private life insurance company.
In the letter, the ministry has asked the stakeholders concerned to supplement all suggestions and views with a justification to support the proposal. Your suggestions and views may be supplemented and justified by relevant statistical information about production, prices, revenue implication of the changes suggested and any other information to support your proposal, the ministry said in the written communication.
Companies have been given time till November 23 to present their views. Industry players are of the view that a change is needed in the existing provisions of taxation to make it more customer-friendly.
We have suggested that there should be a provision wherein all policies with a term of more than 10 years should be exempt from taxation, the chief executive of a public sector bank said. Other suggestions include having different tax exemption provisions for policies with terms above and below 10 years.
The government in the Union Budget 2012-13 proposed that all insurance policies, except pension plans, would have to offer a cover of at least 10 times the annual premium to be eligible for tax benefits under section 80C and 10 (10D).
Life Insurance Corporation of India (LIC) had earlier recommended that the tax relief be linked to the term of the policy. LIC Chairman D K Mehrotra had told Business Standard earlier, We have recommended that rather than linking tax exemption to the sum assured, link it to the term of the policy. You can always say that a tax relief is given to a proposal where the term is more than 10 years. This would help the continuous flow of premium and the persistency will also go up, he added.
The finance ministry further said that with respect to direct taxes, since the government policy is to phase out profit linked deductions and minimises exemptions, the companies may take this into consideration while forwarding proposals. The ministry has further said that it would not consider suggestions that are not supported either by statistics or have not been explained properly.
Finance Minister P Chidambaram had recently said tax incentives were being considered to promote the life insurance sector. Reduction in service tax on first year regular premium as well as on single premium polices, and exempting social security insurance schemes and micro insurance policies from service tax are among the measures under consideration.