Finance Minister rolls back proposal to hike tax to 18.5% from 12.5%, leaves new tax deduction norms on policies unchanged.
The government passed the Finance Bill 2012-13 yesterday. The insurance industry had something to cheer about: the Budget had proposed imposing 18.5% Minimum Alternate Tax (MAT) on life insurers. The Finance Minister has announced the rollback of this tax.
The industry has welcomed this move. “It is good news for the industry, we will wait for final implementation,” says Malay Ghosh, CEO, Reliance Life Insurance.
Currently, the tax incidence is 12.5% on income generated. Insurers had been lobbying for a rollback on the MAT proposal, even as the life insurance industry reported sharp fall in new business premium (Rs 18,400 crore in FY12 over the Rs 35,873 crore collected in the previous fiscal)."We all welcome FM's announcement on rolling back of MAT," says Dr P Nandagopal, MD and CEO, IndiaFirst Life Insurance.
However, the Finance Ministry has left untouched the amended tax benefits for insurance policies which will be applicable from this fiscal. The sum assured or death cover will have to be at least 10 times the annual premium for any policy; it was 5 times in the previous fiscal. This has been done to ensure that insurance is used as an instrument primarily for protection and not for generating market returns.
Though the government’s proposal on premiums has been welcomed, a few industry experts had cautioned that the cost of insurance would go up for elderly policyholders and for those with poor health.