Life insurance companies have sought a separate tax deduction limit of Rs 1.5 lakh in an effort to make this asset class more taxpayer friendly.
The Life Insurance Council (LIC), the industry body of all 24 life insurance companies, has sought deduction under Section 80C which may be allowed on the basis of term of policy and also a separate deduction limit of Rs 1.5 lakh for life insurance.
It would encourage long-term savings and help incremental flows come into life insurance sector, LIC said in a pre-budget memorandum submitted to Finance Ministry last week.
It said that the share of investment allowed for deduction has shrunk and over the period of time, various investments such as mutual fund, bank deposits etc have been included within the overall limit of Rs 1.5 lakh.
Certain expenditure such as tuition fees, fixed deposits, ELSS etc also get allowed as deduction within the same limit.
Hence there is an urgent need to treat life insurance asset class a little differently as this would also help in mobilizing financial resources for the Infrastructure sector as required, LIC said in a statement.
The limit of Rs 1 lakh for contribution to pension policies under section 80CCC and limit of Rs 1.5lakh available under section 80C of the Income tax Act, 1961 should be mutually exclusive, V Manickam, the Secretary General of Life Insurance Council, said.
This would help to incentivise people for creating pension fund to avoid dependency in old age, he said.
LIC has suggested that the threshold to deduct tax should be increased and linked with at least basic exemption limit. The TDS deduction should be triggered only beyond the threshold limit.
On indirect taxes, the LIC has sought reduction in the service tax rate on endowment and single premium policies and has also requested the finance ministry to issue clarification that service tax is not leviable on surrender charges.