Budget Expectation: Rs 1.5 lakh deduction limit for investment in long term financial instruments like life insurance

Life insurance through its extensive retail reach and long term orientation can play a critical role as an aggregator of small and disciplined savings. The current limit in section 80CCE allows for deduction up to Rs 1.5 lakhs in a combination of short-term and long-term products. We propose that a separate limit of up to Rs 1.5 lakhs be considered exclusively for investment in long term financial instruments like life insurance. This will also help channel small savings to infrastructure funding which is of critical importance as India aim for sustained 8% plus GDP growth.

Given the increasing life span of Indians, and keeping in view limited state supported social welfare schemes for the elderly, tax incentives should be provided to encourage retirement planning. The Budget of 2015 provided for an additional tax benefit on investments of up to Rs 50,000 a year for contributions made my individuals under the National Pension Scheme only. We propose that the specific tax breaks of up to Rs. 1 lakhs be extended to include all retirement plans. Additionally, annuity should be exempted from income tax.

As life expectancy continues to increase, life insurance will form an important part of the financial portfolios of people in an age group that are in their middle ages or those nearing their retirement years. The current norms state that tax exemptions will be allowed on policies where the cover is at least ten times the annual premium. As the cost of mortality charges for the aforementioned group of consumers is high, it makes life insurance an unviable long term savings product for them. We propose that this tax exemption should be applicable basis the lterm of policy for policies.

We welcome big reforms like GST to promote economic growth of the country but propose to keep life insurance out of the GST purview in line with the recommendations of the select committee of Rajya Sabha. Alternatively, IGST be made applicable on life insurance companies which will also resolve the issue of restriction on cenvat utilisation.

(Author Rajesh Sud is Executive Vice-Chairman and Managing Director, Max Life Insurance. The views in the article are personal, not that of CNN-IBN/IBNLive)