Mr Parekh was of the view that life insurance being a long-term proposition, only prospects of returns that are immediate, and as high as those available on other financial instruments - would attract savings.``Today, returns on life covers are barely 7-8 per cent, whereas Public Provident Fund offers 11 per cent, including a saving on tax from year one, and later, year-on-year too. Mutual funds too give a 10-11 per cent return,'' he remarked.

He felt that the current practice of taxing life insurance companies and distributing their post-tax actuarial surplus between the policy-holders (92.5 per cent) and shareholders (7.5 per cent) needs to be changed. At present, the only existing life insurer Life Insurance Corporation (LIC) gives 5 per cent of its actuarial surplus to its shareholders or the government and the rest is distributed as bonus to policy-holders.

However, it is felt that the norms stipulated by the Insurance Regulatory and Development Authority (Irda) of 90 per cent to the policy-holders could be followed, but without deducting the 12.5 per cent tax first, Mr Parekh said.Rather, the 10 per cent share in actuarial surplus could be charged at the higher corporate taxation rate, while the policy-holders' share need not be taxed at all. Under such a dispensation, even new insurers - who would not generate profits for six to eight years - could run up an actuarial surplus in a relatively shorter period, he averred.

He was explaining why the "I minus E" formula was not finding favour with the majority of the Eradi panel, set up to make recommendations on life insurance taxation. While income (`I') would imply net premium after meeting liabilities like claims, and from investment like securities and equity, expenditure (E) would be the amount spent on selling, processing and servicing policies, and other expenses. However, the distinction between I and E gets blurred. This gives rise to a plethora of claims and counter-claims.