Life insurers wish for separate tax deduction for life insurance

Mumbai: As the countdown for the Union Budget begins, life insurers want the government to introduce a separate tax deduction limit exclusively for life insurance premiums paid, bring life insurance annuity and pension products at par with the National Pension Scheme (NPS) and reduce the Goods and Service Tax rates on insurance products or provide GST exemption on them.

Says Vighnesh Shahane, chief executive officer and managing director at Aegas Federal Life Insurance, “We have been asking the government to introduce a separate tax deduction limit for life insurance for the last 5 to 6 years but nothing has happened.

The reason is that the current Section 80 C is too cluttered where a person can claim deductions up to Rs 1.5 lakh for PPF, Sukanya Scheme, ELSS, tax saving fixed deposits, school fees, principal sum of a home loan, including life insurance.”

“The other demands are to make pensions tax-free in the hands of annuitant. The current Rs 50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to pension and annuity plans of insurance companies to provide a more level playing field,” added Shahane.

Any individual who is a subscriber of NPS can claim tax exemptions under 80 CCD (1) within the overall ceiling of Rs 1.5 lakh under Sec 80 CCE. Furthermore, an additional tax benefit for investments up to Rs 50,000 in NPS ((Tier I account) is available exclusively to subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of the Income Tax Act. 1961.

“Permitting individuals to deduct the entire amount paid for life insurance premiums from their taxable income, as stated in Section 56, without any decrease due to claims made under other sections such as 80C, will encourage more people to buy insurance. This means they get the full tax benefit for their insurance premiums, making insurance more financially appealing,” said Satishwar B, MD & CEO of Aegon Life Insurance.

The tax benefits for health insurance should be increased significantly and GST rates should be reduced from the current levels.

Also to promote the agency channel, the TDS limit for agents should be increased are the other demands of the sector.