The Hindu Business Line : `I-T sops must to promote insurance spread'

The Managing Director of MetLife India Insurance Company Ltd, Mr Venkatesh Mysore, has suggested certain amendments (relevant to life insurance) in the Income Tax Act, which include making Sec 80 CCC independent of Sec 80 C, necessary changes in Sec 10 (10D) to provide for tax treatment of Unit Linked Insurance Plan (ULIP), removal of anomaly and exemption of contributions to group super-annuation policies from the purview of the Fringe Benefit Tax (FBT).

In his budget proposal, he explains that the deduction towards contribution to life insurance pension schemes was limited to Rs 10,000 under Sec 80 CCC at present and this deduction was further clubbed with an overall limit of Rs 1 lakh for Sec 80C, Sec 80CCC and Sec 80CCD put together. "The downside is that the deduction under Sec 80CCC could be `nil' if the entire amount of Rs 1 lakh was already exhausted in Sec 80C. Given the cost of living, the present limit of Rs 10,000 would be inadequate to encourage an average salaried earner to think of future provisions. Hence the limit should be increased to at least Rs 35,000," he said. He also added that Sec 80CCC be made independent of Sec 80C, since pension addressed a special need (providing post-retirement income) and could not be compared with the other tax-saving instruments that were general in nature.

ULIPs

On the tax treatment of ULIP, he said that the investments under the present plans were eligible for tax deduction under Sec 80C along with other eligible deductions. However, the benefits under ULIP were in the form of withdrawals and the death benefit linked to account value.

"The taxability of such benefits are governed by Sec 10 (10D) of the Income Tax Act. Given that ULIP is a product with features of insurance and savings, the account value would have to be treated on par with mutual fund savings (from the tax point of view).

Further, there is no clarity on whether the Dump in Premium (irregular premium) under ULIP could be treated on par with the regular instalment premiums for a deduction under Sec 80C.

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