With the Budget just round the corner, insurance companies have suggested a separate limit for deductions under Section 80C of the Income Tax Act, for long-term saving instruments like life insurance and exempt exempt exempt (EEE) treatment on the maturity proceeds of products.
While insurers feel the direct tax code is going to change the way individuals invest, they want a separate limit for life insurance.
Currently, the limit stands at Rs 50,000, including tuition fee and health insurance.
"There is nothing left for life insurance after health and tuition fee. We have protested and asked for a separate limit. We have suggested insurance also comes under EEE, if PF (provident fund), PPF (public provident fund) and NPS (new pension scheme) can continue with the EEE structure," said Life Insurance Council secretary general S B Mathur.
Experts feel it is the tenure of investments that should be incentivised and not the instrument.
"It may be long-term insurance products, mutual funds or provident funds. The core competency of India is the saving habits of individuals and the government should incentivise the same in the long-term," said P Nandagopal, managing director and CEO, IndiaFirst Life Insurance.
Last year, the government had absolved all charges, except the fund management charges, under the unit-linked insurance products from service tax.
"Life insurance and pension are the only segments of financial services that address the needs of individuals in the long-term. The government should encourage people to save for the long-term by providing a separate limit for long-term savings," said T R Ramachandran, managing director and chief executive officer, Aviva Life Insurance.
Currently, the deduction under Section 80C also includes short-term saving instruments like some mutual funds and fixed deposits.
Taxing the maturity proceeds would impact the life insurance business and the industry adversely, executives say.
"It will discourage investment in long-term savings as it may result in an unjustified tax burden, especially on customers who do not avail the benefit under Section 80C," said Ramachandran.
The industry is also demanding a carry-forward of losses. For the last few years, industry players have been asking the government for permission to carry forward the losses to 12 years, as against 8 years at present. They say most insurers do not make profit even in the 10 year.