The market builds up a lot of expectations before the presentation of the Budget, and both, the common man and industry have always been anxious to understand its implications.
Insurance is a vital service in a growing economy, and helps regulated risk-taking by individuals and enterprises. Still, penetration of general insurance in India is abysmally low. The adoption of general insurance products such as health among retail consumers will get only better with promising measures by the government. Here are some proposed changes that can help the insurance industry move to the next level of growth and consolidation. The measures will also help the industry to render better service to their customers.
>> Why service tax must be waived
Considering extremely low penetration of GI products in our country, there is a pressing need for concerted effort to make insurance all the more affordable and an attractive proposition for the common man. Clearly, abolition of the service tax will enable this process. Currently the service tax stands at 10.3% including education cess and the Government should consider waiving off the service tax on premiums paid. Alternatively, they should at least exempt health insurance products from the purview of service tax. This move will help to develop health insurance in the country by aiding greater penetration.
>> Why limits of Section 80D must be hiked
Currently, the qualifying amounts under Section 80D for self, spouse and dependent children is up to Rs. 15,000/- and additional deduction up to Rs. 15,000 for the parents. Given the high cost of medical care and to encourage more people to purchase health insurance, Section 80D limits should be increased substantially from the current levels.
For insurance industry:
>> Increase in FDI limits
To ensure that the Indian insurance industry earns its rightful position as a global major, an increase in FDI limit from the current 26% to 49% will be helpful. In order to build a greater momentum for future long term growth, it is imperative that the government takes a call on the further liberalisation of the insurance sector. Commensurate with the growth in business of insurance companies, the capital requirements have been increasing. Given the pressing need for more equity participation from foreign partners of the insurance companies, there is a need to increase the FDI limit from 26% to 49%. For growth to take place to the levels forecast, an infusion of additional capital is essential, which is only possible if higher FDI is permitted. Infusion of additional capital can fuel the growth of these companies, help them in further geographical expansion to tier II and tier III cities and also cater to the requirements of rural markets. Foreign capital would help in greater involvement, deeper expertise in products, better underwriting skills and superior technology transfer to India.
>> Reinsurance payments not to be liable for TDS
As of today, the income tax department seeks tax deduction at source for all premium cessions to reinsurers. General Insurers, as part of their overall risk management, cede a part of the premium received by them to the foreign reinsurers apart from the national reinsurer (GIC Re). These foreign reinsurers generally do not have any permanent establishment in India and hence do not attract the provisions of Section 9 of the Income Tax Act (Income deemed to accrue or arise in India).
Withholding of tax would discourage the Re-insurers and could also lead to a situation of the reinsurance prices hardening and impacting availability of reinsurance capacity. The budget should pave the way for Central Board of Direct Taxes to issue appropriate circulars clarifying that payments to Reinsurers would not be liable to tax deduction at source.
>> Exemption from income tax for profit on sale of investments
In order to encourage general insurance players to be active participants in the capital markets, there is a requirement for specific exemption from income tax on profit on sale of investments. Alternatively, general insurance companies to be placed on par with other industries on applicability of capital gains tax provision.
The issue of admissibility of UPR (unexpired premium reserves) as per IRDA regulations rather than as per Income Tax Act only, for IT deductions.
The UPR (unexpired premium reserves) is at present restricted to the extent of limits specified in rule 6E of the income tax rules due to which insurance companies need to pay income tax beyond their profit disclosed in their audited accounts. Hence, the UPR created as per IRDA regulations should be exempted from the purview of rule 6E. In other words, limits of reserve for unexpired risks should be permitted in line with the Irda regulations.
>> Cenvat credit
Insurance companies should be permitted to avail Cenvat Credit in respect of service tax paid on services rendered by Motor vehicle repairers.
Access to healthcare is the basic necessity for any citizen and it has seen a rise in recent times. Equally important is to understand that insurance empowers one to reduce the gap between the spiralling cost of healthcare and the needs. Hence, it becomes imperative for the Government to provide an environment which may help more and more consumers to buy health insurance. Implementation of suggested measures will help the overall insurance industry to be flourish and will also help in passing the benefits to the ultimate end user as well.
The author is Managing Director, Royal Sundaram Alliance Insurance Company Limited