Budget 2018: The general insurance (GI) industry is passing through a defining phase, as companies get listed on the stock exchanges. Detailed analyses show that a one standard deviation increase in GI penetration induces a per capita GDP growth of 0.39%. At the same time, the industry is credited with employing over 7 lakh individuals, directly or indirectly. Given the low penetration of GI in India at around 0.77% of GDP, there is immense scope for this sector, one that policy makers should help realise through appropriate measures in the Budget and through reforms in general.
The government has been providing tax incentives to buyers of health insurance. The Income Tax Act allows for deduction of Rs 25,000 for premium paid towards health insurance by a policyholder for himself, spouse and children. An additional deduction of Rs 25,000 is allowed for premiums paid for parents (Rs 30,000 in case parents are senior citizens). As the cost of medication is rising, the current slabs necessitate an increase to bring the tax incentives on health insurance premium in line with the rising cost of hospitalisation. Policy makers should consider increasing the limit for deduction on health insurance premium to Rs 75,000 (Rs 100,000 for senior citizens).
The Budget should also act as an enabler to promote non-life insurance in other areas that are of critical importance.While measures are being taken to empower home buyers, it is important to motivate them to protect their homes from any perils. Introduction of provisions in the Budget towards tax incentives on home insurance premium would boost adoption of this underrated insurance product by home owners.
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TDS on motor accident claims
The issue of TDS on motor accident claims remains another point of concern. According to the I-T Act, TDS is deductible if the interest amount awarded by Motor Accident Claims Tribunal (MACT) exceeds Rs 50,000 in a financial year. MACT awards victims of motor vehicle accidents compensation, as well as interest. For many victims of motor vehicle accidents, tax liability does not arise in the normal course of things. Given this scenario, the system of award, which was brought as a relief measure, should not be used as an instrument of taxation. An amendment should be done to exclude interest component on MACT awards from TDS application. Pending amendment, appropriate instructions could be issued to provide relief to both, claimants of compensation and non-life insurance companies.
MAT on non-life insurance
Another area of attention relates to provision of Minimum Alternate Tax (MAT). The provisions of MAT were not applicable to the industry till FY12. However, the Finance Act 2012 made MAT applicable only for non-life insurers with effect from April 1, 2012 and reversed the exemption enjoyed by the industry. Non-life insurers are placed in a singularly disadvantaged position as compared to life insurers, being taxed at the maximum marginal rate. Considering the essential role played by the GI sector, it is important that companies in this segment are exempted from the purview of MAT.
The writer is executive director, ICICI Lombard General Insurance