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Insurers demand higher tax exemptions in budget

26 February, 2008

The fast growing domestic insurance industry, in its wish-list for the forthcoming Budget, has pushed forward demands for higher level tax exemption for long term savings, health insurance, rural business, and hiking the foreign direct investment (FDI) limit to 49% from 26%. US Roy, managing director, SBI Life said the investment in life insurance in context of tax exemption could be unbundled from other short-term investment products. There is also ample scope to encourage individuals to buy health insurance by increasing the exemption limit from the existing Rs 15,000, he suggested. These measures will serve as an incentive and encourage customers to take policies thereby driving the existing low insurance penetration in India," he said. Anjana Grewal, senior vice president, Birla Sunlife also proposed a reduction in individual tax rate, increasing the disposal income and boosting consumption, which are required by the Economy. Under Sec 80(C), the tax incentive clubs all types of savings - short term, medium term, and long term. In order to grow the percentage of funds that need to be channelised into long-term savings, these should be given special treatment, she said.
Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance said the general industry cannot grow to the levels forecast without an infusion of additional capital. This is only possible if higher FDI is permitted, he said. Hiking the foreign direct investment (FDI) to 49% will also enrich the business by bringing world-class business practices and processes, expand distribution capabilities, and deepen market penetration, he explained. We also hope that the government goes ahead with the comprehensive insurance reforms Bill this year, he added. The current service tax, which is 12.36% (up from 12.24% in 2007) including education cess, is steep and detrimental to the much-desired growth of rural insurance, he explained. He suggested the exemption on rural health premium be made applicable to private insurance players. Presently, under the governments Universal Health insurance scheme, this exemption is available only to PSU Companies he said.