Budget 2022 expectations for life insurance policyholders: Life insurance policyholders have huge expectations for the upcoming 2022 budget
Budget 2022 expectations for life insurance policyholders: Life insurance policyholders have huge expectations for the upcoming 2022 budget, especially when it comes to claiming tax deduction benefits for premiums paid for life insurance policies.
Insurance industry experts believe Budget 2022 should pave the way for the introduction of a separate section in the Income Tax Act to claim a deduction from premiums paid over the course of a year. Currently, life insurance premiums and several other investment options are grouped 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 by 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 for life insurance. This would allow for a more logical separation of client funds into long-term and short-term pools,” said Subhrajit Mukhopadhyay, Executive Director, Edelweiss Tokio Life Insurance.
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“Streamlining the GST rate from the current rate of 18% on term products can also help make it more affordable for the masses, who want to buy protection-oriented products like life insurance,” he said. he added.
Treat the life insurance policy as capital property
The Institute of Chartered Accountants of India (ICAI) has made several recommendations regarding life insurance policies in the upcoming budget.
The ICAI has suggested that life insurance policies should be “treated as fixed assets falling within the definition of ‘property’ under section 2(14) of the Act.
He further stated that currently the exemption under Section 10 (10D) is based on the ratio of premium to actual sum insured. This results in life insurance policies with higher premiums due to age, occupational/lifestyle factors (high blood pressure, diabetes, etc.), being treated as taxable.
“Policyholders in absolute need of insurance coverage are denied tax relief due to higher premiums in such cases,” the ICAI pointed out in its pre-budget memorandum.
He suggested that “the exemption should not be linked according to the premium/sum insured ratio. On the contrary, all LIPs with a policy term of 10 years or more should be
Separate deduction for home, personal and travel insurance
The ICAI also suggested that a separate policyholder deduction be made available to policyholders for payments related to travel, personal or home insurance.
“Currently the 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 for policyholders could be made available for payments related to travel insurance, home insurance or personal accident insurance policy,” ICAI said.
The Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested that the government should simplify the calculation of “income” from life insurance policies for TDS payment purposes under Section 194DA.
In its pre-budget memorandum, FICCI pointed out that in accordance with amended section 194DA post Finance (No.2) Act 2019, TDS must be made at 5% on the “income” component.
“Because TDS is an onerous obligation, the term ‘revenue’ may be defined explicitly for the purposes of TDS liability under Section 194DA of the Act as the sum paid or payable to the policyholder, reduced by the total bonuses received up to date of service inclusive of tax and GST… Because TDS is a provisional collection of tax, the calculation of “income” for TDS purposes can be simplified,” FICCI said.
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