Applicability of the provisions of Minimum Alternate Tax to General insurance companies - General insurance companies ought to be exempted from Minimum Alternate Tax as these companies do not enjoy any tax incentives.
The insurance companies are required to prepare books of accounts as per the requirements of IRDA regulations. They do not prepare accounts as per Schedule VI of the Companies Act, which is prescribed under the provisions of MAT.
2. General insurance companies usually hold investments for the long term.
Such investments would be to meet mandated obligations for investments in infrastructure and social sectors as also to meet asset-liability matching requirements.
As per the present computation provisions, the benefit of indexation of the cost of acquisition is not available. Since general insurance companies are taxed on the profit and gains of business of insurance hence there are no computation provisions for indexation. It is suggested that general insurers also be permitted to avail the benefit of indexation as available to other tax assesses.
Corporate India is reporting strong growth and earnings but if India is to push through the double-digit growth barrier in the coming years, it needs much more investments - both public and private - in the power generation, transport and communications networks that support fast growing industry and services.
Hence, with the need to enhance infrastructure spend in India, in addition to the mandatory investment, insurance companies could be further incentivised to invest in infrastructure schemes by exempting the capital gains to the extent they are invested in such schemes.
3. Payments related to reinsurance premium made to non residents should be specifically exempted from tax deduction at source under Section 195.
Presently, foreign reinsurance companies merely receive reinsurance premium from Indian insurers and settle claims raised by Indian insurers. Under the Insurance Act, foreign reinsurers are not permitted to operate in India.
Accordingly, the income, if any of the foreign reinsurance companies, would not be taxable in India. Foreign reinsurance companies who are tax residents of the countries with which India has signed Double Taxation Avoidance Agreement, would not be subject to tax in the absence of permanent establishment in India.
Accordingly specific exemption may be granted in respect of deduction of tax at source from payments on account of re-insurance premiums made to them u/s 195 of the Income Tax Act.
India is in need of reinsurance capacity for many large risks and is dependent on international reinsurance markets.
However, deduction of tax at source from the gross reinsurance premium would make the reinsurance activity unprofitable for reinsurers since such TDS is on their total premium and not on profits.
Payments of reinsurance premiums do not represent profits of reinsurers but gross income. Tax deduction at source on such transaction would not be borne by the reinsurers who would pass on the tax liability back to the insurance companies.