New Delhi: The insurance industry is seeking a level-playing field with the National Pension System (NPS) with a tax exemption for annuity products of insurance companies to make them more competitive.
Companies argue that a tax exemption for investments in pension schemes will increase their pull to investors, helping deepen insurance penetration as it can be bundled with a life cover.
“There is a case to make pension plans from insurance companies on a par with NPS which has a separate limit. Globally, we have seen that separate tax saving limits for insurance goes a long way in increasing penetration and India is no exception,” said Tarun Chugh, CEO Bajaj Allianz Life Insurance.
Industry executives argue that a separate tax exemption limit is needed for insurance because the ₹1.5 lakh limit is too small and has not been revised for a long time.
“A separate category of term insurance for tax exemption needs to be introduced as the current ₹1.5 lakh limit easily gets expended under other eligible deductions under Section 80C,” said Sarbvir Singh, CEO Policybazaar.com. “Further, the income generated from annuity plans should also be exempted from tax to incentivise the adoption of pension products,” Singh said.
Another long standing demand of the industry is the reduction of the goods and services tax (GST) from 18 per cent to 5 per cent on term insurance and health plans. Industry executives say a high rate of taxes disincentivises people from buying cover.
“GST on health insurance policies, at 18 per cent, adds to the cost of health insurance. The industry has been seeking to lower the GST rate on these policies to 5 per cent, which would improve the affordability and thereby penetration of health insurance,” said Ritesh Kumar, CEO, HDFC Ergo General Insurance Co.
Kumar also called for an increase in tax exemption limit on health insurance from the current ₹25,000 per annum.
Policybazaar’s Singh said the Section 80D deduction should increase to ₹1 lakh to incentivise people to get a health cover.