Tax bait to shift focus from assets
The government is firming up measures to encourage savings in financial instruments, such as insurance and pension products, to wean people away from locking in surplus funds in physical assets like gold. Mahua Venkatesh reports.Updated: Feb 01, 2013 23:53 IST
The government is firming up measures to encourage savings in financial instruments, such as insurance and pension products, to wean people away from locking in surplus funds in physical assets like gold.
The initiative includes a plan to make investments in some pension products, which insurance companies offer, eligible for additional tax breaks, over and above the Rs. 1-lakh limit currently allowed under section 80C of the Income Tax Act.
In addition, contributions made to post-retirement medical schemes, offered by insurers, might also get additional tax breaks, sources told HT.
Finance minister P Chidambaram is likely to announce these tax breaks in the budget for financial year 2013-14.
Pension products are long-term schemes. Experts said additional tax deduction for such policies would enable insurers to dig deeper into household savings and help improve solvency.
"Incentives, such as tax breaks, are necessary for household savings to be deployed more productively," said Surya Bhatia, chartered accountant and Delhi-based investment consultant.
At present, all schemes - including those branded as pension schemes - which life insurers offer, are clubbed together with all products for claiming tax deduction of up to Rs. 1 lakh annually under section 80C of the Income Tax Act.
Individuals can claim tax exemptions of up to Rs. 1 lakh for investing in provident fund, national savings certificate, five-year fixed deposits, repayment of principal amount of home loans, children's tuition fee, public provident fund, some mutual funds and premium paid on a life insurance policy.
"The finance ministry is not only keen to revive the insurance and mutual funds sector, which have seen sluggish growth in the past couple of years, but also looking at ways to keep people away from gold," a senior government official, who did not wish to be identified, told HT.
The government is also looking at the possibility of exempting service tax from the first year's premium paid on life insurance policies.
It is also examining whether the premiums of social security insurance schemes, such as Janashree Bima Yojana and Aam Aadmi Bima Yojana, may be exempted from service tax.