Budget Provisions
- Personal income tax exemption limit for general category raised to Rs 2 lakh from Rs 1.8 lakh. Upper limit raised from Rs 8 lakh to Rs 10 lakh for 20% tax bracket.
- Service tax rate raised from 10% to 12%.
- The official amendment to "The Insurance Laws (Amendment) Bill, 2008" will be moved in this session of the Parliament.
- It is proposed to reduce the threshold of premium payable to 10% of the actual capital sum assured from 20% of the actual capital sum assured.
- It is proposed to amend the provisions to provide that the deduction for life insurance premium as regards insurance policies issued on or after 1st April, 2012 shall be allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured.
- Within the existing limit for deduction allowed for health insurance (Rs 15000 for individuals and Rs 20000 for senior citizens), deduction of upto Rs 5000 allowed for preventive health check-up
- Setting up of Infrastructure Debt Funds to tap the overseas markets for long tenor pension and insurance funds.
- To take financial services to the doorsteps in rural areas, services of business facilitators and correspondents to banks and insurance companies have been exempted.
- GDP growth estimated at 6.9% in 2011-12 and expected to be 7.6% (+/- 0.25%) in 2012-13.
Industry expectations
- Increase of FDI ceiling in Insurance Industry to 49%.
- Service tax may be removed for all insurance policies with premium upto Rs.2500/-
- To reduce the 20 times for tax exemption of maturity proceeds to 10 times.
- Charging confessional rate of tax on profits @ 12.5% for life insurance companies.
- Cenvat credit reversal of 20% for the life insurance industry introduced by Budget 2011 should be recalled.
- Recommended that Service Tax should be charged on actual FMC amount.
- Moneyback products should not be taxable.
- Steps like incentives, besides tax savings, for people buying health insurance and allocation of resources for public private partnership to increase health insurance penetration.
- TDS on health insurance claim payments reimbursed to hospitals should be NIL.
- Raising healthcare expenditure as a sizeable portion of the Gross Domestic Product.
- Imposition of service tax on preventive health check-ups can be removed.
- Cenvat credit to be allowed on payments made to motor repair garages as part of the motor claim settlement.
- Deduction of tax at source, on Reinsurance premium, paid to foreign reinsures, to be maximum at 2%.
Budget Impact
- The marginal increase in the upper limit of the 20% IT slabs will increase the investible income for this income class, creating opportunities for insurers to pitch their products to them. This should help increase the market and get first time buyers into the Health Insurance market
- The increase in the service tax by 2% will increase the insurance cost for the customers as it will increase the premiums across the board for all the people buying insurance policies.
- With the incidence of lifestyle diseases, such as diabetes and cardio-vascular ailments rising rapidly in the country, the proposed provision of allowing Rs. 5000 as deduction for preventive health checkups is a step in the right direction, as it will encourage such preventive check-ups.
- The insurance companies are popularizing investment cum insurance schemes. But the government is trying to incentivise more of insurance portion, Accordingly, it has restricted the deduction for annual premiums to 10% of the policy value. This move is still better, and than the stringent requirement of Direct Tax Code (DTC), which seeks to have a higher level of insurance under life policies, but at 20 times.
Outlook
With respect to the Life Insurance sector, except for the recommendations related to tax exemption there is nothing positive for this sector. The new budget norms might bring a portion of the premium under the increased serviced tax net through which service tax on first year premium would increase from 1.5% to 3% of gross premium. Therefore, life insurance premium for ULIPs might become costlier.
For the General Insurance sector, the optimistic growth rate projected for the economy is good news since it has lot of dependency on the growth of manufacturing sector. Budget has projected increased investments in infrastructure including highway development projects. This also should help in generating premium for the general insurance sector. Apart from this the budget appears to be neutral for general insurance sector as well.
