Budget 2018: Life Insurers Seek Higher Tax Deduction

The Life Insurance Council, the public forum that mediates between the government, the insurance regulator and policyholders, has recommended an additional tax deduction of Rs 50,000 for life insurance premium.

The present limit of Rs 1.50 lakh under Section 80C, according to the council’s pre-budget representation note, gets exhausted by other alternatives like tuition fees, housing loan repayment and mandatory provident fund deductions. A separate limit for life insurance premium would make the sector more attractive for investments, it said.

“If an employee is working in an organisation, there will definitely be a provident fund and that itself will be substantial. Now, if he also invests in life insurance policies, a very small fraction of the premium is considered for (Section) 80C,” said V Manickam, secretary at Life Insurance Council. If there is a separate window for life insurance, it will help the industry as more premium will come in and life insurance penetration would increase, he said.

The council also suggested to bring pension policies sold by life insurers on a par with the National Pension Scheme to ensure a level-playing field. It recommended tax-free annuities upon maturity of a pension fund or policy as returns on them are lesser than tax-free bonds.

For NPS, where the flow of money is certain, the government gives additional deduction, said Manickam. If life insurance companies were to get a similar benefit of Rs 50,000, they will be able to leverage their existing network of agents to do better business than NPS. “That will increase social security coverage for citizens.”

The council’s other suggestions include:

• Tax break for all policies with a term of 10 years or more.
• If exemption is not possible, increase the exemption limit to a premium of 20 percent of the sum insured from 10 percent now.
• Increase the time limit for carrying forward business losses from eight assessment years to 15 for life insurers as the capital-intensive business makes it difficult to earn profits in the initial seven to 10 years of operations.
• Citing an example, the council said the regulator allows companies to have higher expense ratios than the allowed limits for the first 10 years of their operations.

Suggestions To GST Council

The council also submitted its suggestions to the GST Council seeking...

• Exemption from generating tax invoices and credit notes based on the ‘time of supply’. There are around 35 crore live life policies and the premium is paid monthly or annually, making the process of raising invoices at the time of supply a “substantial work and expenditure” for insurers.
• Corporate agents should be taxed under the forward-charge mechanism where the supplier of goods and services pays the tax. As of now, agents are taxed under the reverse-charge method where the receiver—in this case insurers—pays taxes. The companies’ burden increases if agents fail to upload their invoices on the GST Network or delay them or underreport the commission paid to them.