After almost three years of slowing growth and high inflation, signs are emerging that there will be an improvement on both the fronts. The GDP growth numbers appear to have bottomed out. Most estimates are indicating a pickup in growth to 6.5-7% levels.Inflation numbers have also surprised positively over the last three months and this augurs well for the consumer.
The reforms initiative and falling inflation have led to the RBI cutting rates 25 bps in January. Going forward, we expect the growth to revive and the business and consumer sentiment to improve.
An enabling Union budget would help remove any apprehensions that Indian consumers at large and the industry in particular would have.
Specific to insurance, we expect the Budget to provide support to life insurance and pension plans.
The sale of pension products which had fallen off the cliff post the charge-cap guidelines introduced in September 2010. While pension plans have recently been re-introduced in the market, policy contributions should be treated on par with subscriptions to the National Pension Scheme (NPS) and should be exempted from Rule 6(7A) of the Service Tax Rules. This will help improve the sale of pension plans to consumers at large. Insurance plans should also be included in a separate limit over and above the limit of Rs100,000 under section 80C of the Income Tax Act for the purpose of income tax deduction on the premium paid.
Service tax & TDS exemptions
The need to improve social security and risk protection through insurance continues to be high in the context of India’s long-term economic development. Support from the government is expected in terms of a reduction in service tax on both regular and single premium products. Socially security schemes which are intended to benefit the weaker and vulnerable sections of the society should be fully exempt from service tax.
At present, TDS applies on every payment of commission to an agent above `20,000. This needs to be shifted from every payment of commission to a cumulative commission payment exceeding, say Rs50,000 or any other suitable threshold in a year.This would help arrest the decline in the number of life insurance agents operating in the industry.
The industry also expects that the FM would build enabling provisions to allow grandfathering of existing policies whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively.
Fiscal 2014 is expected to be a transition year for both the Indian economy in general and the life insurance industry in particular.
The budget can go a long way in creating a positive momentum for the year ahead.
The writer is MD& CEO, HDFC Life
http://www.dnaindia.com/money/report_bring-pension-plans-at-par-with-nps_1802340
