Insurance sector looking for remunerative tax incentives

The Indian insurance sector is looking for remunerative tax incentives in Budget 2013-14 to boost sales volumes and increase penetration. While life insurers demand separate deduction limits for long-term insurance products, non-life insurers want special exemption categories for home and property insurance.

Amitabh Chaudhry, managing director and chief executive officer (CEO) of HDFC Life Insurance, said while the government was aiming to shift savings from real asset classes such as gold to financial asset classes, the Budget would provide an opportunity to introduce some long-standing demands of the life insurance industry.

According to T R Ramachandran, CEO and managing director of Aviva Life Insurance, separate sub-limit for long-term savings such as insurance is crucial to spur demand for life insurance products. Currently, the deduction under Section 80C is a combined limit shared with other investment products, including provident fund contributions, savings certificates, bank tax saver deposits, and insurance and life insurance premiums. Hence, the government should look at encouraging people to save for long-term by providing a separate sub-limit of Rs 1 lakh for long-term savings, he said.

In the last Budget, the finance minister had said tax deduction would be given to policies with sum assured being 10 times of premium. Ramachandran said this was a distortion compared to competing products such as bank deposits and mutual funds where the deduction is based on tenure of the product. Also, this is detrimental for older people seeking life cover as it impacts their premium adversely. We have requested the finance minister to apply the same criteria to insurance products to enable it to attract long-term savings, he added.

Sandeep Ghosh, managing director & CEO, Bharti AXA Life Insurance, said offering a carved out limit purely for insurance will promote life insurance products.

Apart from individuals, insurers said Budget should make the industry attractive for shareholders, too. Rajesh Sud, CEO and managing director of Max Life Insurance, said, Corporate tax is currently governed by Section 44, along with rules contained in the First Schedule of the Income Tax Act, 1961. Accordingly, tax is calculated at 12.5 per cent 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 on the basis of profits disclosed in shareholders account at 12.5 per cent prepared according to the Insurance Regulatory and Development Authority.

On the general insurance front, insurers have demanded special exemptions for categories such as home insurance and personal accident.

Bhargav Dasgupta, managing director and CEO, ICICI Lombard General Insurance, said the expectation from the Budget included increasing the section 80D exemption limit for health insurance as well as bringing segments such as home, personal accident and travel insurance within the ambit of the tax exemption clause. This should encourage more customers to avail of such products, enabling them to transfer unforeseen risks at a minimal cost, he said.

Taxation of reinsurance premiums has also been a pressing issue for insurers. Amarnath Ananthanarayanan, CEO and managing director of Bharti AXA General Insurance, said the reinsurance premium paid to the non-resident reinsurers was chargeable to tax under Section 5(2)(b) of the Income Tax Act.

The reinsurance is an alternative capital to the insurance industry and according to Uniform Model Convention, reinsurance premium is exempt from taxation. According to Article 7 of the Double Taxation Avoidance Agreement (DTAA), all the agreements provide that income arising due to a non-resident enterprise from doing business in India shall not be taxed in India, unless the non-resident enterprise has a permanent establishment in India. Accordingly, neither the overseas reinsurer by itself nor because of its presence in India through a broker constitutes a permanent establishment in India in the absence of physical presence. Therefore, the reinsurance should be excluded from the definition, he said.

The non-life insurers have asked for the budgetary provisions to treat both life and non-life players on an equal footing. Industry players said minimum alternate tax (MAT) was not applicable to life insurance companies, whereas general insurance companies were subject to MAT. Therefore, they have asked for removal of MAT for general insurance companies. Further, they have also asked for equal treatment with life insurers with respect to taxation of capital gains.

Foreign direct investment (FDI), too, has been an issue of concern for both life and non-life insurers. Ramachandran said fresh FDI was required to fuel this and to ensure Indian customers got access to worldclass products, which the foreign partners bring into India.

Delay in enabling this has clouded further investments in the sector. We are hoping all political parties will look at the FDI limit in an overall perspective and encourage the growth of the insurance industry in the country, he added.

Echoing a similar view, K K Mishra, CEO, Tata AIG General Insurance, said he hoped for greater clarity to be gained on FDI norms in the insurance sector, adding that this would benefit the insurance sector as whole, right from product innovation, distribution and to robust customer service. He also called for insurance premium for covering small and medium enterprise risks to be exempted from service tax. For other insurance products, perhaps, a reduction in the service tax of three-four per cent could be considered, he said.

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