Expectations from Union-Budget 2008-09

Tax incentive for long term savings

We recommend a separate limit for deductions under Section 80C for long-term saving instruments like life insurance. Currently the Rs 1 lakh deduction under Section 80C also includes short-term saving instruments like some Mutual Funds and Fixed Deposits. Life Insurance and Pensions are the only segments of financial services that address the needs of individuals in the long-term. Hence, the Government should look at encouraging people to save for long-term by providing a separate limit for long-term savings.

Incentive to invest in Pensions & Annuities

The tax benefit on pensions and long-term savings contribution need to be increased. The world over, the development of much needed long-term saving instruments have been supported by tax exemptions. Countries like the UK and Ireland provide incentives in form of tax credits even to non-tax payers by topping up their contributions by 20 to 25% and even upto to 40% for higher tax payers. If the government does not implement the tax benefit to at least Rs 1 lakh, separately, for pensions, we will see less long-term retirement savings amongst the masses. The salaried section will be hit badly as the corpus on retirement will be insufficient as most people are investing only Rs. 1 lakh at present in both long-term and short-term saving instruments.

Carry forward of losses for long-term gestation businessesInsurance business is a long-term gestation business. Currently, we are allowed to carry forward losses for only 8 years. Most insurers do not make profit even in the 10th year. Hence, we recommend that the period for carry forward of losses is increased to 12 years.

Service Tax

As per Notification no. 6/2005-ST dated 1-3-2005, there is no service tax chargeable for a person whose annual turnover is less than Rs 8 lakh per annum. However in the insurance sector, the insurance company is liable to pay service tax for its agents. We even have to pay for agents with turnover under Rs 8 lakh per annum. We recommend that insurers should not be liable to pay service tax on behalf of the agents whose turnover was less than 8 lakhs in the previous year.

Will foreign equity investment go up?

This is something that was promised to the life insurance players and has been discussed in every budget and we hope the Government is able to take a decision on the same at the earliest.

The growth of the Indian insurance sector is critical from the aspect of a social security measure. Fresh Foreign Direct Investment (FDI) is required to fuel this and to ensure that customers in India get access to world-class products, which the foreign partners bring into India. The increase in FDI will give the Indian insurance industry the necessary capital infusion required for its development and expansion.

We should also bear in mind the beneficial impact that the entry of foreign players to the insurance sector has had on both direct and indirect employment in India. This together with the huge CSR initiatives launched by most companies has had a direct positive impact on Indias economy. Increased FDI limits will accelerate these trends.

We are hoping that all political parties will look at the FDI limit in an overall perspective and encourage the growth of the insurance industry in the country. In insurance the proposal is to raise FDI to only 49%, so the majority control still remains with the Indian partners.

Categories: Budget 2008, FDI, Industry, Market News