'Budget will have good long-term impact on our country'

Pankaj Seith

Life insurance offers a combination of benefits: life/health protection, building of long-term savings and tax benefits. While the tax benefits have been watered down a bit, the other benefits will continue to make life insurance an essential part of anyone's financial investment portfolio.

As far as future of the insurance with regard to this Budget is concerned, developments like the service tax and the reduction in tax benefits are not positive. However, we must remember that the life insurance industry is quite underdeveloped today.

Less than 25 per cent of the "insurable population" have insurance and less than 10 per cent of the "working population" are covered by any formal pension scheme. Hence, looking at both the life insurance sector growth posibilities and the pension sector growth possibilities, our outlook for the future is very positive.

I don't think people who go for multiple policies will hold back. Life insurance is essentially about long- term wealth protection and wealth creation. This is done through protecting against large financial risks (death/critical illness) and through good fund management.

A person may buy 1 policy to cover all of these or may buy a group of policies over time. Also, we must not overplay the impact of the revised Section 88 as the number of income tax payers is also going up significantly.

Lastly, I would also like to mention that there are other sections namely 80D and 80CCC which still offer tax benefits on health insurance riders with a life insurance policy and pension plans respectively.

While I agree that it would have been good to get more tax sops for the industry, I think life insurance and pension products still remain a good value proposition for customers. In today's day and age, risk protection (both death and critical illness) is very key for any individual.

Also, given the longer life spans and break down of the joint family system, it is important for an individual to set aside money in a systematic manner under pension plans.

The taxation of insurance service has not been a very good development as this tax will, directly or indirectly, lead to increased price of the service to the customer.

Driving economic growth is key to drive employment growth. Driving economic growth needs investment in infrastructure which can best come from long-term savings. Hence, it is important for our country that long-term savings are built up through domestic and foreign sources.

The new slabs for rebates on Section 88 instruments are as follows:
1. Taxable income less than Rs 150,000- 20 per cent rebate (max rebate Rs 12000).
2. Taxable income of Rs 150,000-500,000- 10 per cent rebate (max rebate Rs 6000).
3. Taxable income of more than Rs 500,000- No rebate.

To avail of Section 88 benefits, you can invest in the life insurance policy of any life insurance company like LIC or HDFC Standard Life. You can also invest in other instruments like PPF, PF, NSC etc. Across all these instruments, the total amount eligible for tax rebate is Rs 60,000. Another Rs 20,000 can be invested in infrastructure bonds.

For NRIs, there has been one announcement on the repatriability of the invesment in the FCNR accounts.

There have been steps taken in the Budget that will have good long-term impact on our country. This includes the reduction of interest rates (and thus reducing the interest burden), PSU divestments, changing of the pension structure for govt employees (and thus reducing long-term govt liabilities) and more such steps.

Pankaj Seith is Head-Marketing, HDFC Standard Life Insurance.

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