The general insurance industry has sought several tax exemptions, including for home and personal accident covers, from the Finance Ministry in the upcoming Budget.
The tax exemption on home and personal accident covers is to counter poor penetration levels of these products.
The industry has suggested specific measures that include increasing the exemption limit for health insurance as well as bringing segments such as Home, Personal Accident and Travel Insurance within the ambit of the tax exemption clause, said Bhargav Dasgupta, MD and CEO, ICICI Lombard GIC Ltd.
Industry feels this should encourage more customers to avail such insurance products, enabling them to transfer unforeseen risks at a minimal cost. Experts feel that this would benefit the insurance sector as a whole, encouraging product innovation, increase distribution and provide robust customer service.
According to G. Srinivasan, CMD, New India Assurance, The penetration levels of general insurance in India are very low. So it’s time that the government looks at giving this kind of tax breaks so that the habit of general insurance gets improved and more funds flow into the insurance sector.
We are significant players in the stock market, and in the last year’s amendment this profit (from investments) is treated as business income and we are being taxed. We are not even eligible for capital gain exemption, which is available to other financial institutions, so we have asked for it, Srinivasan said.
REMOVAL OF TDS
Further, the general insurance companies have approached the finance ministry through the General Insurance Council, to remove the provision of charging withholding tax-TDS (Tax Deducted at Source) of 20 per cent on reinsurance premium which is proposed in the direct tax code.
Typically in a reinsurance arrangement, an insurance company passes on (cedes) a risk (a part or the whole) to the reinsurer.
For the risk transferred, the insurance company pays premium to the reinsurer.
Out of the Indian Non-life industry’s premium of Rs 58,376 crore in 2011-12, a sum of Rs 4,015 (7.52 per cent) crore was paid as reinsurance premium to overseas reinsurers. When the reinsurance premium is paid, it is an income and not profit to reinsurers, as they will have to honour claims of the risk transferred to the reinsurer, said a CEO of a general insurance company.
The general insurers have contended that the imposition of TDS will deter foreign reinsurers to accept reinsurance risks in the Indian market and will prevent Indian general insurers from underwriting large risks.
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