Govt to push ahead with reforms in pensions, insurance sectors

The finance ministry is planning to announce a series of measures to boost the pensions and life insurance sectors.

Finance minister P Chidambaram has asked the ministry to examine several suggestions that have been made, including considering introducing a separate tax exemption limit on pension policies.

According to Chidambaram, the department of revenue will examine whether, besides the National Pension Scheme, other insurance products approved by the industry regulator could be included in a separate limit, over and above the limit of Rs1 lakh under section 80C of the Income-Tax Act for the purpose of tax deduction on premium paid.

The minister has asked the department to examine the suggestion, made by the Insurance Regulatory and Development Authority (IRDA), seeking a separate tax exemption limit of Rs20,000. Pension plans did enjoy a separate exemption limit of Rs10,000 under section 80CCC of the act till 2004-05, but since then these have been treated as part of section 80C exemptions, which have a total limit of Rs1 lakh.

Another possibility is of a reduction in service tax on the first year regular premium and single premium policies, and treating annuity policy on par with subscriptions to the NPS. Similarly, the first-year premiums and even subsequent premiums of social security insurance schemes could be exempted from service tax.

The United Progressive Alliance (UPA) government, accused of policy paralysis during the first three years of its second tenure from 2009, has launched a spate of initiatives to revive the economy.