Insurers want exemption limit raised to Rs 1.5 lakh

Life insurers are pitching for increased exemption on investments in long-term policies. They have asked the government to consider raising the exemption limit to around Rs 1.5 lakh from Rs 1 lakh at present.

“We want the government to increase the limit from Rs one lakh to around Rs 1.40-1.50 lakh, since investments in housing, education and mutual funds also qualify under the same limit. People will not like to invest in long-term plans when they get a similar exemption on a short-term policy. For this, we have asked to form a separate window. The limits will be increased on products with a minimum lock-in period of five years,” said S B Mathur, Secretary General, Life Insurance Council.

Insurers have recommended the government to levy service tax only on fund management charge of unit-linked products. At present, while insurers pay tax on allocation and stamp duty charges, including the fund management charge, mutual funds pay service tax only on fund management charge.

However, Mathur said that life insurers could never have a zero entry load as insurers have to pay 40 paise on every Rs 1,000 of income to state governments under stamp duty as per the Insurance Act 1938. Last week, mutual funds removed entry load. “As the government has allowed exempted income tax on investment in five-year fixed deposits, it should incentivise people to invest in long-term policies. We want the government to look at the tax levied on various charges on a life policy in a more rational manner,” said U S Roy, managing director and chief executive officer, SBI Life.

There is a huge disparity between the life insurance industry and the mutual fund industry. Insurers pay charges on risk premium, commission to agents and fund management charges, whereas mutual funds only pay fund management charges.