Taxing times

Nisha Das
14 January 2003

Mumbai: The current tax incentives given by the central government on various pension insurance polices offered by Indian life insurance companies are emerging as a barrier for the growth of the pension insurance sector in the country.

Currently, policyholders get the benefit of tax exemption of just Rs 10,000 per annum under section 80 CC of the Income-Tax Act if s/he takes a pension insurance policy. The insurance companies feel that the absence of an attractive tax incentive scheme will make it difficult for them to tap the huge pension insurance market.

Says Life Insurance Corporation (LIC) executive director (marketing) T K Banerjee: “LIC has mooted a proposal with the government to enhance the tax net for pension insurance schemes as per the current market requirements. Following this, the Insurance Regulatory and Development Authority [IRDA] has also tabled a separate recommendation with the government pointing out the same issue. However, no decision has been taken so far.”

Currently, LIC has a 60-per cent market share in the pension insurance sector, while the remaining 40 per cent is held by private players.

The need increases As per the National Readers Survey, 3.9 crore males in the age group of 32 to 55 years need to plan for retirement and the life insurance companies have also been pushing hard for increasing the tax exemption under section 80CC to push pension products.

LIC officials say in building a retirement fund, an individual faces double taxation. As the tax rebate is just up to Rs 10,000 towards building up a pension plan, much of the premium income comes from post-tax returns.