The Direct Taxes Code (DTC) Bill tabled in the Lok Sabha today is likely to negatively impact the life insurance industry on many counts, if implemented in the present form.
It has suggested a dividend distribution tax of five per cent on unit-linked insurance plans (Ulips).
In addition, income tax exemption for investment in approved funds up to Rs 1 lakh does not specifically mention life insurance products. “In the current form, we cannot assume that insurance will come under approved funds,” said Homi Mistry, partner, Deloitte Haskin Sells.
The industry’s recommendations to give tax maturity benefits if the tenure of the policy was 10 years and the premium exceeded 10 per cent of the sum assured was not accepted.
The revised code has also proposed a maturity tax benefit on a 20-year policy if the premium does not exceed five per cent of the sum assured.
Insurers said this would mean the code would only benefit higher income groups, as any sum received at maturity under a life insurance policy, including bonus, would be taxed if the premium does not exceed five per cent of the sum assured.
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All existing Ulips, endowment and money-back and guaranteed return plans will take a hit.
At present, all insurance products fall within the exempt-exempt-exempt regime. Also, there is no tax if the sum assured is five times the premium on all maturities.
“The industry will have to meet up the revenue department. They will take up the matter before the code goes to the parliamentary committee,” said a senior insurance company executive.