Separate Limit for Life and Health Insurance Premiums

The insurance industry requests the government to generate a separate tax exemption limit of 50, 000 for life insurance premium in the approaching budget to support more individuals to buy such policies.

Anuj Mathur, Chief Financial Officer, Canara HSBC OBC Life Insurance said, "It is suggested that a standalone additional exemption limit of 50,000 (over and above the already existing limit of Rs 1,00,000) be specified for (life) insurance premiums alone under the Income Tax Act.

At present investment in saving instruments, like risk cover, pension products, PF contributions, National Savings Certificates and others, are entitled to collective deduction of 1 Lakh In addition to that, investments in infrastructure bonds up to 20,000 also meet the criteria for deduction. Rajesh Sud, MD & CEO, Max New York Life Insurance said, "We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at,".

According to industry experts varying lifestyle made compulsory an assurance for future income generation, thus increasing the need for a life insurance policy. In order to make certain better insurance penetration, the life insurance companies should be allowed to come under the Exempt, Exempt, Exempt (EEE) bracket. Under EEE, a policy holder gets tax exemption at various stages during the term of the policy.

Insurance sector wants capital on a periodic basis for growth and experts expect that the budget session would also see passage of FDI Bill in insurance sector to 49 percent from the current 26 percent. The life insurance companies currently pay tax of 12.5percent and the Direct Taxes Code, which would replace the archaic IT Act from April 1, 2012, does not specify any specific limit for the same. This would mean being taxed at 30 percent.