Life insurance companies have urged the regulator to work out a special investment window for their products.
The issue was raised at a recent meeting of the Life Insurance Council with Subhash Chandra Khuntia, Chairman, Insurance Regulatory and Development Authority of India.
“Life insurance products have a long investment period and need focussed attention. They should not be clubbed with other investments under the Section 80 C Income Tax limit,” said an official, who attended the meeting, adding that life insurers have sought a separate annual investment window of at least ₹50,000.
Final draft
Sources said that Khuntia has asked the life insurance industry to finalise a formal proposal that can be taken to the Finance Ministry for further discussion.
The government offers an additional tax deduction of ₹50,000 for investment in the National Pension System, and insurers say that a similar facility should also be extended to life insurance products.
Life insurers have also pointed out that unlike general insurance products such as third-party motor insurance, which is mandatory, most life insurance products do not have a sufficient “pull factor” and fail to attract the interest of consumers.
Similarly, the 2018-19 Union Budget also increased the deduction for health insurance premium and medical expenditure under Section 80 D for senior citizens to ₹50,000 from ₹30,000.
“Life insurance products are, however, important investments and have a huge potential given the large under-penetration of these products in the country,” said the executive.
Currently, Section 80 C of the I-T Act provides a deduction of ₹1,50,000 to the total annual income of an individual for long-term investments such as the public provident fund, Employees’ Provident Fund, National Savings Certificates, unit-linked plans and life insurance.
While life insurers are optimistic after their discussions with the IRDAI chief, the move could be some time away due to the general elections early next year. Any such tax deduction would have to be introduced as part of the amendments to the Finance Act, along with the Union Budget.
The current government is likely to table only an Interim Budget and the Full Budget for 2019-20 will be presented by the new government after elections.