Insurance regulator Irda will take up with the government the issue of 2 per cent income tax deducted at source (TDS) by life insurers from maturity proceeds, a senior official said today.
The tax has been imposed on life insurance products only, and hence Irda has favoured its removal to bring parity of such plans with other financial instruments.
According to Section 10 (10 D) of Income Tax Act, insurers have to deduct tax at source of 2 per cent from maturity proceeds of a life insurance policy if the premium paid is more than 10 per cent of the sum assured.
"Out of various gross domestic saving (GDS), which comprises financial instruments like MF and insurance, it is the life insurance products only which are taxed on maturity.
This was not justified keeping in view the fact that insurance is a 'pull' product," Irda Member (life insurance) Nilesh Sathe said here. The watchdog will take up the issue with the government and push for removal of the tax, he told reporters on the sidelines of CII Financial Distribution summit.
"Insurance sector has been playing a pivotal role in nation building. Fifty per cent of the premium collected by the insurers, which is directly linked to the sum assured, goes to government securities. And a major part of government securities goes for the funding of infrastructure projects and hence the insurance sector needs to be supported by the government as well," he said.
Half a dozen insurers have applied to the regulator for raising the FDI in them to 49 per cent. "As of now, six insurers, both from life and non-life segments, have applied for increasing the FDI limit to 49 per cent from the existing mark of 26 per cent," he said.
"The insurers willing to increase FDI limit to 49 per cent will have to apply for the same through FIPB route." Commenting on the Sumit Bose Committee report, recently submitted to the government, he said Life Insurance Council has written to the Centre, suggesting differentiation to be made between 'push' and 'pull' products.
Moreover, he said, the 21 lakh agents working for the insurance sector need to be incentivised through commission. The panel has suggested for phasing out of the agents' commission over a period of time. Sathe said Irda was working on a draft for insurance products to be sold through e-commerce channels.
To a query, he advised insurers to go public as soon as it was possible. "There must be involvement of retail investors in the sector," he said.