Non-life insurers to seek withdrawal of capital gains tax

The general insurance council will meet the Central Board of Direct Taxes (CBDT) officials on June 23 to seek a withdrawal of a proposed capital gains tax in the direct tax code, released on Tuesday.

The revised draft has proposed capital gain tax on income from equity investment of non-life insurance companies. If the proposal is implemented in the current form, it will result in around 20-25 per cent reduction in profit after tax (PAT) of non-life insurance companies.

“Profit made on sale of investment will be taxable now, which has become a matter of concern before us. It is all set to have its impact on our PAT,” said M Ramadoss, Chairman and Managing Director New India Assurance on the sidelines of Skoch summit.

The largest non-life insurer New India Assurance saw an income of Rs 1,000 crore to Rs 1,200 crore from sale of investment as on March 31. Ramadoss said they would have to pay 20 per cent of PAT as capital gain tax.

Similarly, United India Insurance saw Rs 900 crore coming from its investment income. But huge underwriting losses had brought down its PAT.

However, since most of the general insurers are still reeling under huge underwriting losses, the rules may not hit them immediately. Public sector insurers expect to write off their accumulated underwriting losses in another two-three years.

“We will not be affected by this for next 2-3 years as we have got our accumulated underwriting losses right now,” said United India Insurance Chairman and Managing Director G Srinivasan.

Insurers attribute underwriting losses to competition in the market which results into ridiculous pricing. Post de-tariffing in 2007, rates on fire and engineering have fallen by almost 90-95 per cent.

Insurers, however, said now things are changing as the discounts have seen a fall in the current financial year. “We are pricing risk on a case to case basis. In certain cases, we have raised the premium even by 100 per cent depending on our past claim experiences. There is a 5-10 per cent correction in the fire and engineering segment,” said Srinivasan.