Tax incentives on anvil to promote life insurance: FM
New Delhi: Life insurance policyholders can look forward to more tax concessions with Finance Minister P Chidambaram asking the revenue department to look into the possibility of removing service tax on first premium and creating separate exemption limit for pension schemes.
Chidambaram said he has asked the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) to give their report on the changes in the tax structure for life insurance companies by October 10.
The slew of incentives being considered by the Finance Ministry for boosting life insurance industry include reduction in service tax on first premium, separate tax exemption limit for pension plans and greater incentives for agents selling policies.
The Ministry has formulated this proposal following a review of life insurance sector in consultation with heads of various companies and Chairman of Insurance Regulatory and Development Authority (IRDA) J Hari Narayan.
"Department of Revenue will examine whether, in addition to NPS, some insurance pension products as approved by IRDA may be included in the separate limit over and above the limit of Rs one lakh under section 80C of the IT Act for the purpose of income tax deduction on premium paid," Chidambaram said.
The Revenue Department, Chidambaram said, would also look into the proposal of exempting annuity policy from service tax in line with National Pension Scheme (NPS) and also reducing the levy on single premium products.
With regard to social security insurance schemes, he said the tax authorities would examine whether first year premium and subsequent premiums on such schemes like Janshri Bina Yojana (JBY) and Aam Adami Bima Yojana (AABY) could be exempted from service tax. Also the possibility of exempting micro-insurance from this levy.
He further said a similar exercise would be done for the non-life insurance sector.
Chidambaram said the CBDT would consider whether the total sum paid for post-retirement medical scheme could be made eligible for income tax deductions.
To encourage agents, Chidambaram said the CBDT would look at the possibility of tax deducted at source (TDS) rules.
"At present, TDS applies on every payment of commission to an agent above Rs 20,000. CBDT will examine whether the exemption can be shifted from every payment of commission to a cumulative commission payment exceeding, say, Rs 50,000 or any other suitable threshold in a year," he said.
The CBEC will be requested to examine whether service tax may be assessed to realisation basis, he said.
At present, service tax is levied on premium on accrual basis. So even if the actual realisation does not happen, the life insurance company has to pay service tax based on accrued or assumed income.
"CBDT will examine whether existing policies can be grandfathered whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively," he said.
The proposed amendments to the insurance laws were also discussed with IRDA, he said, adding, some of the issues raised by the insurance companies have already been addressed in the Insurance Laws (Amendment) Bill, 2008, that is pending before Parliament.
In respect of some other issues, further amendments, if necessary, will be introduced as official amendments to the pending Amendment Bill, he added.