Amitabh Chaudhry, managing director and chief executive, HDFC Life, said revival of financial savings should be one of the key objectives of the government. This could be by way of introducing additional tax incentives, small savings schemes, raising tax exemption limits, increasing the exemption cap for home loans to allow consumers to save more, etc, steps that would increase the domestic savings rate.
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He added health security was a major concern. Today, less than a fifth of health expenditure is funded through insurance. This leaves the poor and the marginal with a huge risk, as health related out-of-pocket expenses leave several families without savings and many in debt. “A programme to enroll individuals into the life protection pool, on the lines of the Jan-Dhan Yojana, should be defined and aggressive targets introduced to increase penetration,” he said.
Through the past few years, household savings, as a proportion of gross domestic product (GDP), had witnessed a steep decline, he added. It has been reduced to 18.2 per cent from a high of 25.2 per cent in FY10, with the financial savings/GDP ratio declining from 12 per cent to 7.2 per cent during the same period, according to Reserve Bank of India data.
While non-life insurers are expecting double digit growth in business, they are also hoping for a few tax rebates. K K Mishra, managing director and chief executive of TATA AIG General Insurance Company, said a tax rebate on premium should be given to buyers of home insurance. He added exemption of tax on premium for rural insurance would lead to deeper penetration of livestock and similar insurance products.
“Tax benefits for health insurance limits will be a welcome initiative to provide cover in times of need at the onset of rising medical costs. We also believe insurance premium for covering small and medium enterprise (SME) risks could be exempted from service tax, as this will help the sector in insuring its assets,” said Mishra.
Also being sought is an increase in income tax exemption limits. A separate limit for life insurance products would help boost penetration, the sector says.
Rajeev Kumar, chief and appointed actuary, Bharti AXA Life Insurance, said the limit under section 80 CC should be raised and the amount linked to inflation. He added annuity income should be made tax-free to encourage pension products.
In the life insurance segment, tax benefits are given only to policies (except pension) for which the sum assured is 10 times the annual premium. This is where some players are seeking changes. Vighnesh Shahane, chief executive, IDBI Federal Life Insurance, said the life insurance sector had recommended the tax relief be linked to the term of the policy instead of the sum assured. “We expect tax relief is given to a proposal for which the term of the policy is more than 10 years. This will promote long-term saving habits and benefit the persistency ratio of life insurance companies, too,” he said.
He said companies had suggested the section 10(10D) provision be suitably revised, in line with the minimum assured death benefit guidelines prescribed by the insurance regulator. This, he said, would address the disparity pertaining to the minimum death benefit condition and reduce the mis-selling complaints with regard to taxability of maturity proceeds.
The sector is also seeking a separate limit or section for long-term savings products. And, clarity is also being sought on taxation. Shahane said the point-of-taxation rules required insurance companies to pay tax in advance on the first premium, as well as renewal premia paid in advance.
If a policy is cancelled, the insurance company is liable to refund customers immediately. However, it takes some time for companies to get a refund from the government. Shahane said this was inconvenient, as companies lost interest on the amount.
To simplify the tax structure, he said service tax liability should be made applicable upon the ‘recognition of premium’ in case of new business, ‘actual collection of cash’ in case of renewal premia for traditional products and ‘allocation of units’ in case of unit-linked insurance plans.
The sector has also sought exemption from payment of service tax for services provided by life insurance agents. As these entities are intermediaries, whose functions are similar to those of mutual fund distributors, life insurers think the exemption provided to mutual fund distributors in the exemption notification should be extended to life insurance agents.