NEW DELHI: The upcoming Budget 2013 is high on expectations, but the finance minister has to deliver as he has reiterated his commitment to fiscal consolidation, and allayed fears of excessive populism,Deutsche Bank has said in a report.
While these assurances have assuaged investor concerns somewhat, the global investment bank believes investors are still unsure of the scale of fiscal consolidation and will be watching the budget closely.
Dutsche Bank says that it would like to give the government the benefit of doubt and reiterates that the FY14 budget will see the finance minister walk the tightrope.
The fiscal deficit target for FY14 will likely be pegged at 4.8 per cent, accompanied with the articulation of a credible roadmap on achieving this objective.
We expect the FM to also use the FY14 budget as a platform to build the confidence of investors, corporate India and credit rating agencies.
Investors and insurance companies look forward to the Budget session for passage of Insurance Laws (amendment) Bill, which proposes to raise FDI in insurance from 26 per cent to 49 per cent. All insurance holding companies will in principle benefit as it will bring them closer to listing.
Here are the insurance sector’s expectations from the Budget:
1) Investments into Provident Fund and Insurance premiums: Under section 80(C) of India’s Income TaxAct, investments into provident fund and insurance premiums, among others, are eligible for tax deductions up to a limit of Rs 100,000.
The insurance industry wants an additional relaxation to encourage purchase of long-term insurance policies. There is expectation that the government would consider creating a separate limit (over and above the Rs 100,000) for pension products, including National Pension Scheme (NPS), and long-term insurance policies.
2) Reduction in service tax: It will be on first-year regular premium as well as single premium policies.
3) Service tax on a realization basis: There is expectation that service tax may be assessed on a realization basis. At present, a service tax is levied on premium on an accrual basis.
However, some amounts due are never received. Similarly some amounts received in advance with proposal are not converted into policy. Considering the nature of life insurance, service tax liability should be on the basis of receipt of amount and subsequent conversion as premium.
4) Annuity policy: The policy is treated on par with subscriptions to the National Pension Scheme (NPS) and to be exempted from service tax rules.
The existing insurance policies are grandfathered whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively.
5) Post-retirement medical schemes: Contributions made to post-retirement medical schemes offered by insurance companies may be allowed as a deduction.
At present, TDS applies to every payment of commission to an agent above Rs 20,000. There is expectation that the exemption can be shifted from every payment of commission to a cumulative commission payment exceeding, say, Rs 50,000 or any other suitable threshold in a year.