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The Life Insurance Council has asked the Finance Ministry to carve out separate tax exemption limits for life insurance and pension policies.
It wants a separate tax exemption limit of ₹1.5 lakh for premiums in the coming Budget to help attract more flows into life insurance policies.
It has also proposed a separate limit of ₹1.5 lakh for investments in pension plans.
“The most crucial recommendation which has been made over the years is to increase tax benefits around long-term savings to spur demand for life insurance products. The additional leeway in Section 80C will encourage people to buy more life insurance to protect their family’s future, while getting a tax benefit,” said Tarun Chugh, MD and CEO, PNB MetLife.
V Manickam, Secretary-General, Life Insurance Council, said the need for a separate limit for life insurance arises as the current exemption limit of ₹1.5 lakh includes investments in bank deposits, tax-saving deposits, PPF, NSC, infrastructure bonds, equity-linked savings schemes and home loan principal repayment.
The life insurance industry has also asked the Centre to relook the current provision of Section 10(10D), which stipulates that the sum assured or life cover has to be at least 10 times the premium in the first year in order to attract tax benefits.
“We would request the government to relook this limit and bring it down to five times.
“This would help in increasing insurance penetration and avoid double taxation, as the customer is now taxed at the time of buying the policy and also on maturity, if the limit is not met.
“This has impacted the growth of the industry, as now people are reluctant to purchase insurance products which provide living benefits through long-term savings,” said Chugh.
Service tax cutFurther, the council has asked for a reduction in service tax to 1.75 per cent (where the risk component is not separately identifiable) for first-year premiums, single premium policies and lumpsum amount received to purchase annuity.
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