Pension products offered by insurance companies may also get tax relief on par with the New Pension Scheme (NPS) over and above the limit of Rs 1 lakh under Section 80C of the Income-Tax Act.
The Department of Revenue will examine whether, in addition to NPS, some insurance pension products as approved by the Insurance Regulatory and Development Authority (Irda) may be included in the separate limit, over and above the limit of Rs 1 lakh under Section 80C of the Income-tax Act for the purpose of income tax deduction on the premium paid, Finance Minister P Chidambaram said on Monday.
This would mean the amount invested in these instruments, as well as the returns earned, would be exempted from tax. The proposed move will help increase the reach of life insurance in the country. The ministry is also considering reduction in service tax on the first year regular premium, as well as single premium policies, treating annuity policy on par with subscriptions to a NPS. It is also planning to exempt the first-year premium and subsequent premiums of social security insurance schemes such as Janashri Bima Yojana and Aam Aadmi Bima Yojana from service tax. A similar exemption will be examined in the case of micro insurance policies.
The revenue department will also explore the possibility of assessing service tax on realisation basis. At present, service tax is levied on premium on accrual basis. It will examine whether existing policies can be grandfathered whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively.
Deduction may be allowed on contribution made to post-retirement medical scheme offered by insurance companies. At present, TDS (tax deducted at source) applies on every payment of commission to an agent above Rs 20,000.
The Central Board of Direct Taxes (CBDT) will examine whether the exemption can be shifted from every payment of commission to a cumulative commission payment exceeding, say, Rs 50,000 or any other suitable threshold in a year.
The finance minister has asked the revenue department to complete the examination of these suggestions by October 10, 2012 so that appropriate decisions may be announced shortly thereafter.