The ease of tax compliance, simplification, and digitisation are the cornerstones of doing business in India today. Infrastructure spending needs to go up with a focus towards sustained growth. The proposals regarding the Insurance Amendment Act are also expected to be taken up sooner or later, said Former IRDAI Member Nilesh Sathe during the 2nd episode of ‘ETBFSI Budget 2024’ Live series.
Earlier, Insurance was looked at as an instrument to save tax but the new generation has understood that insurance should be purchased for covering risk on life and not as an investment tool as there are better options available in the market, he pointed out.
Still, there are a couple of people, especially in rural areas, who tend to subscribe to savings linked insurance schemes, reason being that mutual funds or other investment avenues have still not reached the doorsteps of Bharat while insurance agents are present at every nook and corners of the country.
Number of people subscribing to insurance in general or savings oriented schemes, will definitely come down over a period of time, he said.
“The government has been of the idea that insurance should not be given any sort of leevay from taxation. For instance, if you pay the premium, you would get tax relief. The bonus that you get is also tax free, and the maturity was also tax free. Effectively the rate of return on insurance policies used to be quite substantial for those who paid taxes. But now over a period of time, all the attractions are going away and there is no more an EEE (Exempt, Exempt, Exempt) pattern in insurance, especially since last year’s amendment,” Sathe expressed.
The government also wants to push everyone to the new tax regime and it doesn’t promote tax concessions on account of savings. The government has rather been unsuccessful in pushing people to the new tax system and going forward, it can be a possibility that the government revokes the older regime entirely, the veteran insurer added.
When asked about whether the government will give some redemption to the insurance sector, since it is clear that the finance ministry doesn’t seem in favor of promoting any tax saving schemes, he said that it is likely to happen but this being the interim budget, the industry should not have their hopes held high.
One thing that he wanted to highlight was that when there was more than 50-60% income tax on corporations, the tax on insurance companies which are in surplus used to be at 14%. But for corporations now, it has been reduced to 25-30% of tax effectively, but a similar reduction has not been given by the government for insurance companies. Still they have to keep on paying tax on 12.5%.
This is one major anomaly which the government has not looked into because insurance itself is very capital intensive, unlike mutual funds or even banks to that extent.
Secondly, 50% of investable funds of insurance companies are being poured into government securities which is indirectly helping the government to raise funds at a reasonably lower rate of interest.
“So some sort of concession should be given to the insurers, but the government is not in the mood to give it,” he said.
Watch the first, second, third, and fourth Episodes of the ETBFSI’s Union Budget 2024 series.
