Chennai, Feb 26 (Calcutta Tube) Finance Minister Pranab Mukherjee’s budget may have rejected major demands of life insurers, but the proposal to treat life insurers at par with the mutual fund sector in respect of service tax is expected to add around Rs.300 crore to their kitty.
‘Earlier life insurers were paying service tax on all the charges collected from the policyholders under their unit linked insurance policies (ULIP). From next fiscal onwards they will be paying 10 percent service tax on the fund management charges alone akin to the mutual fund industry,’ S.B. Mathur, secretary general of Life Insurance Council of India, told IANS.
According to him, the saving for the industry as whole will be around Rs.300 crore.
V. Srinivasan, chief financial officer of Bharti Axa Life, said: ‘The policyholders will be immensely benefited by this move. The internal rate of return (IRR) on ULIPs will be up by 40 basis points.’
The increase in the limit for tax deduction at source (TDS) from Rs.5,000 to Rs.20,000 saves lot of administrative work on the insurers who deduct the tax on the commission paid to the agents, he said.
Alternatively the insurance agents will see more money on their hands from next fiscal onwards.
‘The change in the income tax slabs will result in more disposable income in the hands of people. As a result there will more sales of life insurance policies,’ P. Nandagopal, managing director of IndiaFirst Life Insurance, told IANS.
‘Indians do not blow up their surplus money. They have the tendency to save their surplus money. With the change in income tax classification people will be able to buy better life insurance policies.’
The new slabs has income up to Rs.1.6 lakh per year exempted from income tax; up to Rs.5 lakh to be taxed at 10 percent; income of Rs.5-8 lakh to be taxed at 20 percent and income above Rs.8 lakh at 30 percent.
Mathur does not grudge the finance minister’s announcement of the government contribution of Rs.1,000 to those pension accounts opened under the New Pension Scheme (NPS).
‘It will enable people in the unorganised sector to get some pension scheme,’ he said.
However, the finance minister has not answered the two prayers of life insurers for extension of carry forward losses to 10 years from the current eight and separate limit for deduction under Sec 80C of the Income Tax Act for long term saving instruments like life insurance policies.
‘Once the direct tax code becomes applicable the issue of carry forward of losses will not be there,’ said Srinivasan.
(V. Jagannathan can be contacted at email@example.com)