Taxing times

Insurance at present is one of the most conspicuous sectors in the financial space with almost 45 companies operating in India.

A host of newer players are lining up for entry and plenty of action is expected with the possibility of an increase in the foreign direct investment limit to 49% from the current 26%. However, much of the prospects of this industry — undergoing tough times courtesy the downturn — would be related to the government’s policy of incentivising long-term savings.

The common refrain among most of the life insurers has been for measures that will promote long-term investment and savings habits.

TR Ramachandran, CEO and MD, Aviva Life, said, “We would recommend a separate limit for deductions under Section 80C for long-term saving instruments. Currently, the Rs 1 lakh deduction under Section 80C also includes short-term saving instruments like some mutual funds and fixed deposits. Life insurance and pensions are the only segments of financial services that address the needs of individuals in the long term. The government should look at encouraging people to save for the long term.”

Prashant Tripathy, executive VP-strategic planning and business development, Max New York Life Insurance, said, “Separate limit for tax exemption for long-term saving instruments or increasing the limits under section 80C for tax exemption on life insurance premium could be one way to promote savings behaviour. Exemptions of tax on annuities could be another way, especially investments for retirement planning.”

According to Tripathy, the “service tax on life insurance should be levied only on the fund management charges and all other charges should be exempt from service tax. Recent discussions on increasing service tax back to 12% would be a retrograde move and should be avoided.”

Most companies feel the tenure of the carry forward losses should be extended. Aviva’s Ramachandran said, “We are allowed to carry forward losses only for 8 years. Most insurers do not make profit even in the 10th year... we recommend carry forward of losses be increased to 12 years.”

On the general insurance side, S Sreenivasan, CFO, Bajaj Allianz, said, “General insurers are taxed on book profits and are deprived of all allowances and benefits like tax holidays, capital gains, accelerated depreciation etc. The tax rate should be lowered to 15% for the industry to survive and to bring them on par with MAT companies and various other industries.”