Financial Daily from THE HINDU group of publications
Monday, Jul 01, 2002
Financial Daily from THE HINDU group of publications Monday, Jul 01, 2002 |
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Income Tax Money & Banking - General Insurance Corporate - Income Tax Retrospective tax breaks for superannuation funds Hema Ramakrishnan
NEW DELHI, June 30 CORPORATES operating `approved' superannuation funds are set to qualify for income-tax breaks with retrospective effect from October 2000. The move is expected to benefit private players in the domestic insurance industry. Senior officials said that the Finance Ministry had agreed to amend the relevant income-tax rules to accord tax exemption to such `approved' funds operated by corporates with retrospective instead of prospective effect following a request made by the Insurance Regulatory and Development Authority (IRDA). Amendments to the relevant I-T rules to grant tax breaks to corporates running approved superannuation funds were made with prospective effect - i.e. from April 2002. IRDA's plea was that the amendments should be with retrospective effect - i.e. co-terminus with the grant of licences to private insurance players. The Law Ministry has given its consent to the Finance Ministry's proposal and a notification will be issued shortly, officials said. The grant of tax breaks follows the Ministry's decision earlier this year to allow private insurance companies to provide annuities to beneficiaries of approved superannuation funds run by corporates. The Central Board of Direct Taxes (CBDT) had also amended the Income-Tax Rules 1962 to allow private players in the insurance sector to run group gratuity schemes where companies having approved gratuity funds can make contributions. Earlier, contributions received in a gratuity fund set up by a company could be deposited only in the group gratuity scheme run by LIC or in a post office savings bank account or in an account in any scheduled commercial bank. Annuities are monthly payouts made by the annuity providers (the insurance companies) to the beneficiary of a superannuation fund against the pension assets accumulated in the person's account during the working life. The payout is made on retirement, termination of service or death of the beneficiary. Tax exemption is available to a trustee of a superannuation fund or a gratuity fund on income received only if the funds are granted the `approved' status by the Chief Commissioner or Commissioner of income-tax. The employer's annual contribution to the supernnuation and the gratuity funds are allowed as deductible business expenditure in computing the taxable income. While the employers' contribution to a superannuation fund is not treated as perquisites in the hands of the employee, the employee's contribution attracts a tax rebate of 10 per cent of the contribution subject to the overall maximum limit of 12,000 per annum.
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