A new government with a clear majority has evoked lot of positive sentiment in the country in terms of the ability to take effective steps for growth and development. The mandate from the people of India has put the onus on the new government to bring in reforms for an economically prosperous country and reverse some of the negative economic trends such as slowing GDP growth and high inflation levels.
life insurance, one of the most important segments of the financial services industry at large, though has contributed immensely to boost various sectors in the economy through its long term investments, supported significantly in the form of tax contributions, provided huge employment opportunities, is currently reeling under tough economic and regulatory pressure. The industry needs support from the Government of India, to help it in further contributing for nation building activities in the coming years.
As an immediate action, the new Government should address the following to boost growth in the life insurance industry:
A) Long Pending Insurance Bill
With an absolute majority, the new government is expected to address the long pending Insurance Bill, which looks to raise the foreign direct investment (FDI) cap in the sector from the current 26 per cent to 49 per cent. FDI relaxation would encourage long-term fund inflow that would both encourage the growth of insurance in India as well as provide the government with access to funds to aid infrastructure growth. Moreover, insurance industry has seen negative job creation as number of agents and employees have been on the wane. FDI would get in greater investments into the sector and make it an attractive proposition for good talent.
B) Need for Rationalization of Tax laws
Rationalization can be addressed by bringing in clarity and simplification in the tax laws, relooking into the current investment limits for tax rebates and certain current tax provisions.
Relooking into the current investment limits for tax rebates and certain current tax provisions
Provisions that require clarity/simplification
In case of service tax, we expect reduction of service tax on single premium policies. Insurance companies are required to pay service tax of 3% in the first year and 1.5% in the subsequent years of the Premium charged from policy holder. In case of single premium policies, a single lump sum premium is collected in the first year, which is taxed at 3% and the benefit of reduced rate of 1.5% is not available. In case of single premium policies, the gross value of services is significantly lower as opposed to other endowment policies. Accordingly the proposed tax rate of 1.5% for single premium policies wherever risk is not separable.
Lastly, we expect clarity on the road map of DTC and GST. This would help the industry in better planning for the implementation of the new laws.
This article is a reprint of the original article published in Financial Chronicle.
Mr Amitabh Chaudhry has been with HDFC Life since January 2010. HDFC Standard Life is today recognized as the premium brand in the insurance space and is one of the India’s largest private insurers. Before joining HDFC Standard Life, he was the MD and CEO of Infosys BPO Ltd and was also heading the Testing unit of Infosys Technologies Ltd.View Complete Profile
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