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FDI through automatic route in insurance sector is a welcome move: Max Life

Rajesh Sud     March 1, 2016

The Finance Minister has presented a balanced budget with a strong push for agriculture, rural and social economy. The Union Budget also provides an impetus for job creation and entrepreneurship and has given significant attention to increasing investment in infrastructure development which will help fuel growth in the economy. The Budget clearly showcases the Government's commitment to fiscal prudence and its intent to continue on the stated path on reduction of fiscal deficit. This is a welcome step as it will provide stability to the Indian economy in an uncertain global economic environment.

On the BFSI front, FDI through automatic route in the insurance sector is a welcome move as it will attract foreign investments in this capital intensive industry. The Finance Minister could have provided greater allocation for bank recapitalisation to promote better credit availability, which is important to support growth.

The New Pension Scheme has been made more attractive through EEE tax exemption and reduction in service tax on annuity services. In another step to promote pension sector, annuity in the hands of annuitants will be tax exempt and service tax on single premium annuity schemes has been reduced from 3.5 per cent to 1.5 per cent. While these developments will promote pension sector, extension of these benefits and inclusion of all pension plans in Rs.50,000 tax exemption limit, like NPS, would have further helped in creating a secured old age for many Indians. Also, reduction in service tax on pension premiums during the accumulation phase would have been an encouraging step for the sector.

TDS has been reduced from 10 per cent to 5 per cent for individual agents and 2 per cent to 1 per cent on the benefit payouts from life insurance policies to policyholders. This will benefit insurance agents and customers who fall in lower tax brackets. Also TDS threshold limit on commission payout to agents has been reduced from current Rs. 20,000 to Rs. 15,000 which will lead to higher tax deduction even for agents with low income. It is suggested that the exemption limit be increased to Rs 50,000.

On the indirect tax front, the Budget proposes additional 0.5 per cent cess on insurance premium through imposition of Krishi Kalyan Cess on all services which will take the effective service tax rate to 15 per cent. In a country with low life insurance penetration, the additional cess makes life insurance even more expensive. The Finance Minister should consider leaving out life insurance plans which promote protection and long-term savings from this increase in cess.


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