Life insurers and pension fund players have hailed the proposed norms relating to customers benefit in Draft Taxes Code (DTC) on Tuesday.
K Sahay, CEO, Star Union Dai-ichi Life Insurance said, ?It is a positive development that the government has taken care of the life insurance industry and listened to our demands. It will really help us grow our business as endowment, pure term insurance and whole life insurance products, including Ulips which will continue to fall under exempt-exempt-exempt (EEE). It is a relief to know that the life insurance products are social security instruments and hence must not be taxed.??
The government, in its revised DTC, has proposed to provide the EEE method of taxation for government provident fund (GPF), public provident fund (PPF), recognised provident funds (RPFs) and the pension scheme administered by Pension Fund Regulatory and Development Authority. Approved pure life insurance products and annuity schemes will also be subject to the EEE method of tax treatment.
In order to achieve the objective of long-term savings, the rules for contribution as well as withdrawal will be harmonised and made uniform so that such savings are actually made and utilised by the taxpayer for the long term. Investments made before the date of commencement of the DTC, in instruments which enjoy the EEE method of taxation under the current law, would continue to be eligible for EEE method for the full duration of the financial instrument.
The government said a large number of representations have been made with regard to the proposed EET system. It has been stated that most countries that follow the EET method of taxation of savings also have a social security system in place for all their citizens. EET savings accounts which operate for individuals in these countries are over and above the mandatory social service payments received by them.
It has been represented that in India, in the absence of a universal social security system, the proposed EET method of taxation of permitted savings would be harsh. Tax payers require flexibility in making withdrawals in lump sum without being subjected to tax.