Insurance likely to get further sops in Budget
contribution made to post-retirement medical schemes offered by insurance companies could also be allowed as a deduction. The minister recently said at a public function that mis-selling and complexity of products have been stumbling blocks in the growth of this segment of the financial services market. The minister had also said that with a reach of less than 4% of gross domestic product (GDP), India was one of most under-insured nations.
Reflecting Chidambaram’s thinking, the finance ministry on December 24 exempted two insurance schemes meant for the rural landless households and the poor (Aam Aadmi Bima Yojana and Janashree Bima Yojana respectively) from the 12% service tax to make these schemes more attractive.
“There is no doubt that tax breaks could help in improving the reach of insurance products, particularly when insurers can no longer offer guaranteed returns,” said Mukesh Butani, chairman and managing partner, BMR Legal.
“The basic objective of insurance is risk coverage. Except for the new generation, people do not see as much value in risk coverage as they do in a more tangible form of investment such as land or gold,” said Ernst & Young tax partner Prashant Khatore.
Recommendations from experts and a Parliamentary panel to raise the personal income tax exemption limit to Rs 3 lakh from the current Rs 2 lakh is also under consideration, although the current limit is in line with the structure proposed in the Direct Tax Code. If accepted, this proposal could help boost consumption in the economy and make taxation
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