INSUBCONTINENT EXCLUSIVE:
development (iii) A Caring Society
In furtherance of these prominent themes, the government has made several policy and tax announcements.
The government recognises the
importance of focussing on the infrastructure sector to achieve its vision of making India a $5 trillion economy by 2024-25
Few months ago, in the monthly economic report of November, the government announced its intention to spend Rs 100 lakh crore on development
of modern infrastructure over the next five years
Towards this, Budget rightly announced several measures to boost the infrastructure sector.
It goes without saying that the insurance sector
plays a pivotal role in the economic development of the country
Insurance helps in channelising the small savings of the taxpayers into a large pool of funds, which can be invested in capital markets and
infrastructure sector, thereby resulting into availability of capital for the growth of the country.
Unfortunately, the Budget has failed to
boost the insurance sector
regime for individuals and Hindu Undivided Family (HUF) with modified tax slabs and rates
In order to opt for this scheme, the taxpayers will have to forgo a lot of deductions currently available under the Income-tax Act, 1961
Once such deduction is under section 80C of the ITA wherein amongst others, taxpayers can claim deduction upto Rs 1,50,000 in respect of
premium paid for purchase/renewal of life insurance products
It is well recognised that insurance is a push product
Many individual taxpayers in India buy life insurance products to claim deduction under the ITA
In view of the new optional tax regime, it is likely that many individual taxpayers in the lower tax bracket may not buy/renew life
insurance products going forward
This will have a negative impact on the life insurance sector, thereby impacting the insurance penetration in India, which is already
extremely low compared with other countries.
The insurance industry players were hoping that the policy announcement made in previous budget
However, no such policy announcement was made
Honestly, such policy announcements need not be part of Budget proposals.
Indian branches of foreign reinsurers were hoping that a special
code of taxation, that is fair and unambiguous would be introduced for them and process of obtaining blanket NIL withholding tax certificate
would be rationalised on the similar lines as currently applicable to Indian branches of foreign banks
On this matter as well, no announcements were made.
Non-life insurance companies would welcome the proposed amendment regarding allowability
of deduction for unpaid statutory liabilities under section 43B of ITA in the year of payment
Another positive announcement for the insurance sector is that the government will divest its holding in Life Insurance Corporation of India
(LIC) through initial public offer and unlock value for investors
many instances where few proposals, which were not part of the Budget, were later on considered when Budget was laid down and debated before
Hence, one hopes that the government would allow the deduction of life insurance premium paid to insurance companies despite opting for a
new optional tax regime for individuals and HUF given that it will not only give boost to the sector, but would also lead to more money in
Likewise, it is expected that the government would soon enhance the FDI limit in insurance companies up to 74 per cent without insisting on
insurance penetration.
(Sunil Badala is Partner and Head of Financial Services Tax at KPMG India)
