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Life insurance companies seek tax relief on annuities

The insurers also refer to the need for parity on annuity investment of those individuals who opt for commutation and those who do not
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Representational image.
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Pinak Ghosh   |   Calcutta   |   Published 03.01.22, 03:10 AM

Life insurance companies want the finance ministry to consider giving tax benefit on annuities in the Union budget to protect the earnings of senior citizens amid low interest rates.

“Annuity should be tax free in the hands of the holder. In a falling interest rate regime, the pensioners are suffering. At least, the capital component of annuity should not be taxed,” said Vignesh Sahane, MD and CEO of Ageas Federal Life Insurance.

The insurers also point out to the need to bring parity on annuity investment of those individuals who opt for commutation and those who do not.

Niraj Shah, CFO, HDFC Life, said that the government has granted deduction up to Rs 1.5 lakh under section 80CCC of Income Tax Act for contribution made to certain pension plans and exemption under section 10(10A) of the Act for an amount taken as lump sum (commuted) on vesting/maturity of pension plans.

“At present, 60 per cent commutation is allowed under pension plans. However, if an individual does not commute any amount and opts for 100 per cent annuity, the pension received is fully taxable. The budget should remove this anomaly,” said Shah.

Separate exemption

The sale of life insurance policies has picked up in the Covid pandemic with heightened awareness among individual policy buyers.

While tax exemptions on health insurance premium are available under a separate section — 80D of Income Tax Act — exemption on life insurance premium is clubbed along with other investments such as provident fund, small saving schemes etc. under section 80C.

“We would recommend a separate bucket for life insurance policies under section 80C of Income Tax Act or an increase in the limit from Rs 1.5 lakh, as the section is currently cluttered with several investment options such as PPF, ELSS, NSC, NPS among others,” said Sahane.

“Life insurance is a long-term solution, unlike other financial products which have shorter investment horizon and are covered under the 80C provision, said Subhrajit Mukhopadhyay, executive director, Edelweiss Tokio Life Insurance.

“We expect the budget to consider creating a separate section for tax deduction on premium paid towards life insurance. This would enable a more logical segregation of customer’s funds into long-term and short-term kitties,” he said.

Mukhopadhyay further said that considering a low single digit penetration of life insurance in India, tax incentives should be given to first time life insurance buyers to encourage more people to get insured.

Important tag

Insurance regulator Irdai has said state-owned LIC, GIC Re and New India continue to be identified as Domestic Systemically Important Insurers (D-SIIs) for 2021-22.

D-SIIs refer to insurers of such size, market importance and domestic and global inter connectedness, whose distress or failure would cause a significant dislocation in the domestic financial system.

The Centre is preparing for the initial public offering of LIC in thos quarter.

The Centre will also push for the privatisation of any of the four general insurers — National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and the United India Insurance Company Ltd.



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