Life insurers have asked for parity with other financial products such as mutual funds and fixed deposits, which do not attract service tax on maturity.

Calling for an end to the step-motherly treatment to life insurance policies industry body Life Insurance Council has suggested to the Finance Ministry that life insurance products, which presently attract a service tax of 2 per cent on maturity proceeds for policyholders holding PAN cards and 20 per cent those without PAN cards, should be removed. These recommendations were made by the Council as a part of the pre-budget recommendations to the Government for the life insurance industry.

“Life insurance products are given a step-motherly treatment in taxation. The service tax provision on maturity proceeds is only applicable to life insurance policies that are long-term products and not levied on short-term financial products like mutual funds and bank fixed deposits,” said V Manickam, Secretary General of the Life Insurance Council.

He said life insurers are mandatorily required to invest 50 per cent of their overall investments in Central and State Government securities, which stand at around ?10 lakh crore. Life insurers have also invested ?3 lakh crore in infrastructure investments, he added.

The Council has also asked to carve out a separate tax exemption limit for life insurance premiums of ?1.5 lakh in Budget 2015-16, to help attract more flows into life insurance policies. The Council also sought a reduction in service tax for annuities and regular premium traditional policies to 1.5 per cent from the current 3 per cent to make life insurance products more attractive. A senior official from the insurance regulator said that they have written to the Finance Ministry to make insurance more tax-payer friendly.