Mumbai: The insurance sector is seeking a separate threshold for I-T deductions for long-term savings and a relook at the taxation structure in the forthcoming Union budget.
“There should be a separate limit for deductions under Section 80C for long-term saving instruments like life insurance and pensions as they address the needs of individuals on a long-term basis,” Aviva India CEO and managing director T R Ramachandran said.
Section 80C of the Income-tax Act provides for a deduction of up to Rs1-lakh to an individual for making investments in certain savings instruments or incurring expenditure on tuition fee and repayment of housing loan.
“Currently, the Rs1-lakh deduction under Section 80C also includes short-term saving instruments like some mutual funds and fixed deposits and hence the government should look at encouraging people to save for the long-term by providing a separate limit for long-term savings,” Ramachandran said.
Expressing a similar view, ICICI Prudential Life Insurance’s executive vice-president Puneet Nanda said, “The availability of similar benefit under Section 80C for both short-and-long-term instruments ends up encouraging short-term investments. So, a separate limit for long-term investments such as life insurance and annuity under Section 80C may be considered.”
IDBI Fortis’ managing director and CEO G V Nageswara Rao said the present investment limit under Section 80C is common for all instruments like insurance, mutual funds and postal schemes, amongst others.
“We are seeking a limit specific to long-term instruments like insurance products,” Rao said.
Max New York Life Insurance chief financial officer Sunil Kakkar said that insurance creates a habit to invest on a long-term basis and the Government should encourage long-term investments by providing tax incentives.
“There has to be a differentation between long-term and short-term investments under section 80C,” Kakkar said.
The life insurance companies are also seeking exemption on annuity payment.
“Insurance companies offer pension products which is paid on an annuity basis. At present, this is taxable which is a burden for pensioners. There should be a tax exemption for annuity payment,” IDBI Fortis’s G V Nageswara Rao said.
A change in the rules of taxation in annuity is required, Kakkar said.
“A relook at the taxation structure in annuity which is presently taxable is called for and only the interest portion should be taxed,” Kakkar said.
“Exempting from tax the principal (savings) portion of annuity pay-outs may be considered. Taxing the whole annuity payout, which is the current tax regime, leads to double taxation,” Nanda said.
The life insurance sector has also demanded that service tax, in case of ULIPs, should be levied on fund management charges only.
“The Finance Act, 2008, levies service tax on the entire range of charges in ULIPs resulting in higher cost of insurance for customers. An exemption from service tax on charges other than administration charges would provide relief and bring parity between ULIPs and mutual funds,” Nanda said.
“Service tax should be there only for the fund management charges for ULIPs as it is not comparable with mutual funds,” Rao said.