New Delhi, Feb 20: Voicing the concerns of insurers, the Insurance Regulatory and Development Authority (IRDA) has asked the government to reduce tax rate on policy-holders surplus to three per cent and exempt pension schemes for the unorganised sector in the Budget. IRDA chairman N Rangachary has also written to Finance Ministry demanding tax deduction on the amount general insurance companies intend to set aside for building a catastrophe fund.

"The industry is concerned about the tax structure. I have recommended to the Finance Ministry to reduce the tax rate on policy-holders surplus to three per cent from the present 12.5 per cent as suggested by the Eradi Committee," Rangachary said on the sidelines of a Ficci seminar here on Thursday.
He said the higher tax rate was relevant earlier when the personal income tax rates were as high as 60 per cent. "The income tax rate has come down over the years but the tax rate on shareholders' surplus is still higher," he added.

The high tax rate results in lower return to policy-holders, especially at a falling interest rate regime.
If the government does not reduce the tax rate, it would indirectly result in lower returns to policy-holders. Bureau Report