Tax Incentives on Anvil to Promote Life Insurance
Bangalore: The government is contemplating a slew of tax incentives to make life insurance policies more attractive for investors and increase penetration of insurance in the country.
Among other things, the finance ministry is looking at the possibility of exempting first year premium from service tax and extending the scope of tax exemption scheme to cover more life insurance policies.
"I have asked Department of Revenue and CBDT/CBEC to complete the examination of (various) ...suggestions by October 10, 2012 so that appropriate decisions may be announced shortly thereafter," finance minister P Chidambaram told reporters here.
The Minister further said he has asked the Central Board of Excise and Customs (CBEC) to look at the possibility of reducing service tax on first year regular premium as well as single premium policies.
Chidambaram had earlier met the heads of life insurance companies and IRDA chairman J Hari Narayan to work out steps to boost the insurance sector.
The Revenue Department, Chidambaram said, would also look into the proposal of exempting annuity policy from service tax in line with National Pension Scheme (NPS).
With regard to social security insurance schemes, he said the tax authorities would examine whether first year premium and subsequent premiums on such schemes like Janshri Bina Yojana (JBY) and Aam Adami Bima Yojana (AABY) could be exempted from service tax.
These ate intended to benefit the weaker and vulnerable sections of the society, he said, adding, a similar exemption is to be examined in the case of micro insurance policies.
The CBEC will be requested to examine whether service tax may be assessed to realisation basis, he said.
At present, service tax is levied on premium on accrual basis. So even if the actual realisation does not happen, the life insurance company has to pay service tax based on accrued or assumed income.
Chidambaram also said that the Department of Revenue will examine whether, in addition to NPS, some insurance pension products as approved by IRDA may be included in the separate limit over and above the limit of Rs 1 lakh under section 80C of the Income Tax Act for the purpose of income tax deduction on the premium.
Further, whether contribution made to post retirement medical scheme offered by insurance companies may be allowed as deduction will also be examined, he added.
"It is proposed to schedule, shortly, a similar meeting with the General Insurance sector to sort out issues in the non-life insurance sector. Chairman, IRDA will be invited to attend the meeting," he added.
In reference to tax deducted at source (TDS) on agent commission, Chidambaram said, CBDT will examine whether the exemption can be shifted from every payment of commission to a cumulative commission payment exceeding, say, Rs 50,000 or any other suitable threshold in a year.
At present, TDS applies on every payment of commission to an agent above Rs 20,000.
"CBDT will examine whether existing policies can be grandfathered whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively," he said.
The proposed amendments to the insurance laws were also discussed with IRDA, he said, adding, some of the issues raised by the insurance companies have already been addressed in the Insurance Laws (Amendment) Bill, 2008, that is pending before Parliament.
In respect of some other issues, further amendments, if necessary, will be introduced as official amendments to the pending Amendment Bill, he added.
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