Budget 2022 expectations for Life Insurance Policyholders: Life Insurance policyholders have huge expectations from the upcoming Budget 2022, especially when it comes to claiming tax deduction benefits for premiums paid towards life policies.
Insurance industry experts are of the view that Budget 2022 should pave way for the introduction of a separate section under the Income Tax Act to claim a deduction against premiums paid in a year. Currently, life insurance premiums and several other investments options are clubbed together under Section 80C for tax deduction purposes.
“Life insurance is a long-term solution, unlike other financial products which have a shorter investment horizon and are covered under the 80C provision. Currently, all financial purchases are clubbed under the same IT deduction section (80C) capped at Rs. 1,50,000. We expect the budget to consider creating a separate section for a tax deduction on premiums paid towards life insurance. This would enable more logical segregation of customer’s funds into long-term and short-term kitties,” Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance, said.
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“GST rate rationalization from the current rate of 18% on term products may also help make it more affordable for the masses, who are keen on buying protection-oriented products like life insurance,” he added.
Treat life insurance policy as capital asset
The Institute of Chartered Accountants of India (ICAI) has made several recommendations regarding life insurance policies in the upcoming Budget.
ICAI suggested that life insurance policies should be “treated as a capital asset falling within the definition of “property” under section 2(14) of the Act.”
It further said that currently exemption under section 10(10D) is based on premium to actual capital sum assured ratio. This results in life insurance policies with higher premiums due to age factors, occupational/lifestyle diseases (blood pressure, diabetes, etc.), being treated as taxable.
“Policyholders in absolute need of insurance cover are denied tax relief due to higher premiums in such cases,” ICAI pointed out in its pre-Budget memorandum.
It suggested that “exemption should not be linked based on premium to sum assured ratio. Rather, all LIPs with a policy term of 10 years or more should be
Separate deduction for home, personal, travel insurance
ICAI also suggested that a separate deduction to policyholders should be made available for policyholders for payments related to travel, personal or home insurance.
“Currently, deduction under section 80C of the Act is available for LIP and a deduction under section 80D of the Act is available for Health Insurance premiums. It is suggested that a separate deduction to the policyholders may be made available for payments relating to travel insurance, home insurance or personal accident insurance policy,” ICAI said
The Federation of Indian Chambers of Commerce and Industry (FICCI) suggested the Government should simplify the computation of “income” from life insurance policies for TDS payment purposes under Section 194DA.
In its pre-budget memorandum, FICCI highlighted that as per amended section 194DA post Finance (No.2) Act 2019, TDS is required to be made at 5% on the ‘income’ component.
“Since TDS is an onerous obligation, the term ‘income’ may be defined explicitly for the purposes of TDS liability under section 194DA of the Act as sum paid or payable to the policyholder as reduced by aggregate of premiums received till the date inclusive of service tax and GST…TDS being a provisional collection of tax, computation of ‘income’ for TDS purposes may be simplified,” FICCI said.