Reaction from Vivek Mathur, Chief Financial Officer, Tata AIG Life Insurance
Union Budget 2012 is a mixed bag. However, for a life insurance company, introduction of MAT (Minimum Alternate Tax) at 18.5% of book profits is an unexpected proposal that needs to be rolled back as most of the life insurance companies have huge accumulated losses.
Currently, the normal income tax rate on profits of a life insurance company is 12.5% and tax is payable after accumulated losses are wiped out. In current environment of more than 25% year on year de-growth in new business premium, the industry is grappling to grow business post change in unit linked regulations.
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The entire business model including products will have to undergo a change if MAT is applied. The life insurance industry has been witnessing frequent regulatory changes impacting the business model sustainability.
The eligibility for deduction under Section 80C(3) for premium on life insurance has been changed from 20% of sum assured to 10% of sum assured.
The same eligibility criteria is proposed to be applied on exemption under Section 10(10D) on any sum received from life insurance policy. It is in line with the expectation and products will continue to be designed in line with the tax benefit to the policyholders.
The 100% input service tax credit has been reinstated for life insurance companies against 80% made applicable in the last budget. It is a welcome move for the industry. However, where the entire premium is not towards risk cover, the first year’s premium is proposed to be taxed at the rate of 3% against the current rate of 1.5%.
