General Insurance penetration in India is still quite low at 0.7% of GDP.
We are hopeful that in this budget, the government will announce a few measures that would aid higher adoption of insurance products among retail consumers.
In that context, our budget expectations are:
1. Service tax waiver on Health Insurance Schemes:
Out of the total health care spends of Rs 350,000 crore per annum in India, only 3% is being contributed through Health Insurance.
There is a pressing need to increase the safety net of Health Insurance in India.
One measure that could help is withdrawal of service tax on Health Insurance premiums, thereby leading to a lowering of cost/premium for the consumer.
Healthcare services are already exempt from service tax, and this benefit should be extended to Health Insurance premiums.
2. Service tax exemption on annual premiums less than Rs 1000
Back in 1994, it was decided that there would be no service tax on insurance premiums less than Rs 50.
This threshold has not been revised since then. Insurance penetration in rural areas needs to be increased, and it would help significantly if the exemption limit were raised to Rs 1000.
3. TDS benefit on Health Insurance claims
In case of cashless arrangements of health insurance claims, the ultimate beneficiary of such health care services is the individual.
Therefore TDS should not be applicable on payments made towards settlement of claims by the Insurance Company to the hospital on behalf of the insured.
4. Increasing Home Insurance penetration
There is significant under penetration of Home Insurance. The introduction of a separate clause, which allows for deduction of Home Insurance premiums paid will provide an incentive for a higher take-up rate. 5. Tax deduction at source from reinsurance premium payments made to global reinsurers
The Indian insurers are approximately paying annually Rs 2500 crore towards reinsurance premium to global reinsurers.
The foreign reinsurance companies neither have any presence or place of business in India nor can act as reinsurers in India under the license from IRDA and hence under the Income Tax Act, such premium remittances to them cannot be taxed in India as the requisite conditions of income accruing and arising in India are not met. In absence of clear provisions under the Income Tax Act, the authorities may contend to withhold the tax at the maximum marginal rate.
As the withholding of tax on reinsurance premium would be contrary to established international practices, the industry will not be able to recover the same from foreign reinsurers.
This in turn would impact the profitability of the Indian insurance companies and also affect the policyholders in terms of higher premium pricing.
Our submission is that the provisions of section 195 should specifically exclude payments made to non-residents on account of reinsurance premium.
The author is the MD & CEO, ICICI Lombard GIC