Budget 2013: Need to make insurance more affordable for common man, says Ajay Bimbhet, Royal Sundaram Alliance Insurance Company

Non-life insurance segment has a very high potential to grow. However, in the absence of incentives, individual prefer saving instruments. Therefore, there needs to be a concerted effort to make insurance all the more affordable and attractive for the common man, says Ajay Bimbhet, Managing Director, Royal Sundaram Alliance Insurance Company Ltd, in his pre-Budget expectations.

Mr Bimbhet lists a few recommendations on service tax, income tax and some other things related to general insurance products for the Union Budget 2013:

FOR CUSTOMERS

Measures to increase insurance penetration:

Service Tax:

a) Considering the abysmally low penetration of insurance in our country, there needs to be a concerted effort to make insurance all the more affordable and attractive for the common man. The government should consider waiving off service tax on insurance premium paid, or at least exempt health insurance products, RSBY, crop insurances, Senior Citizens Policy and long-term insurance products such as property and other exempt categories from the purview of service tax.

b) To promote insurance penetration, the government can consider giving SOPs to certain sectors like SME’s for providing health insurance cover to all employees.

Income Tax:

a) The government must consider incentivising people with increasing the limit of Section 80C from the current limit of Rs 1 lakh to Rs 2 lakh at least.

b) Further, given the high cost of medical care and to encourage more people to purchase health insurance, the limits under Section 80 D of Income Tax Act, 1961 should be raised to Rs 50,000 from the current level of Rs 15,000.

(Currently, under this section, health insurance premium paid in accordance with a scheme framed by any insurer approved by the Insurance Regulatory & Development Authority ( IRDA) can be deducted up to Rs.15,000 from taxable income. If the policy is taken on the health of a senior citizen, the limit gets enhanced to Rs 20,000)

FOR INSURANCE COMPANIES

Increase FDI limit:

With the Finance Minister’s discussions held on the issues concerning the regulatory environment in the financial sector, and passing of Insurance Amendment Bill in Lok Sabha, we are hopeful to see the increase in the FDI limits from 26% to 49%. Infusion of additional capital can fuel the growth of insurance companies, help them in further geographical expansion to more tier II and tier III cities, cater to the requirements of rural markets and help Insurers to augment solvency positions.

Reinsurance payments not to be liable for tax deduction at source:

As of today, the income tax department seeks deduction of tax at source for all premium cessions to reinsurers. General insurers, as part of their overall risk management, cede a part of the premium received by them to the foreign reinsurers apart from the national reinsurer (GIC Re). These foreign reinsurers generally do not have any permanent establishment in India and hence do not attract the provisions of Section 9 of the Income Tax Act (Income deemed to accrue or arise in India).

Withholding of tax would discourage the re-insurers and could also lead to a situation of the reinsurance prices hardening and impacting availability of reinsurance capacity. The budget should pave the way for Central Board of Direct Taxes to issue appropriate circulars clarifying that payments to reinsurers would not be liable to tax deduction at source.

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