The Insurance sector is one of the most important contributors to a nation’s financial health. The Government of India has, for the past few years, tried to encourage the public to buy insurance for important aspects of their lives via a series of schemes and tax rebates. We expect this trend to continue. We list some of the expectations of the insurance industry.
The insurance and banking industry will be positive about several changes mentioned below:
- Separate limit for deduction of life insurance policy premiums: It is desirable that a separate limit of INR 50,000 be introduced for deduction of premiums paid towards life insurance policies over and above the existing composite limit of INR 1.5 lakhs. This will incentivise taxpayers from the lower- and middle-income segments to purchase adequate insurance cover.
- Period of carry forward and set-off of losses in case of insurance business (life insurance and other than life insurance): It is desirable that insurance businesses be allowed to carry forward and set-off business losses for an indefinite period. This is envisioned to provide a fillip to the insurance industry.
- Increasing TDS threshold applicable on insurance commission under section 194D of the Act: The threshold limit for deduction of tax at source under section 194D of the Act be increased from INR 15,000 to INR 100,000. increasing the threshold from INR 15,000 will not only reduce administrative burden on the tax department in processing refunds, but also increase disposable income in hands of the agents.
- Non-life insurance: Deduction in respect of insurance premium: A separate deduction should be introduced for premium paid for travel insurance, home insurance or personal accident insurance policy. This will encourage people to secure their assets like car, home, etc. and avail personal accident cover, which will turn provide financial protection and secure the policyholder from any financial losses that may arise due to unforeseen/unexpected events.
- Rule 5 in the First Schedule - Deduction for amount disallowed under section 40(a)(i)/(ia), to insurance companies (other than life insurance): It is recommended that in addition to proviso to Rule 5, the said rule be further amended to provide that any other expenditure or allowance or certain specified provisions that are disallowed or added back considering the provisions of section 30 to 43A, which are otherwise allowable, should be allowed in the year of payment of such expenditure [for example, section 40(a)(i)/40(a)(ia)] or be reduced from profit in the year of reversal of such provision [section 40A(7)].
- Taxability of reinsurance premiums earned by foreign reinsurers: It is recommended that clarity be provided on taxation regime for the foreign re-insurer carrying on business in India through its branch office. Further, clarity is also required on taxability of re-insurance premium earned by a foreign re-insurer not having taxable presence in India. This would resolve the confusion on taxability of re-insurance premium and would promote the re-insurance sector in India.
The insurance industry is a key pillar of the financial services sector and is counting on measures taken by the government in this budget to boost their business. The health of the insurance industry is key to the health of the overall financial services sector.
This article was originally published in Business Today.