The Budget is drawing near. And like every year, there are expectations attached with this year's Budget. Personalfn takes a look at the present status and gives its view on what might transpire this year with respect to life insurance.
EEE to continue?
As things stand today, the exempt-exempt-exempt (EEE) regime of taxation holds good. This regime is applicable to tax-saving instruments that fall under the Section 80C ambit. With respect to life insurance products, an individual is eligible for tax sops based on the premium paid, similarly the maturity proceeds are also exempt from tax in most cases.
In the last year's budget, the finance minister spoke of moving towards an EET (exempt-exempt-tax) regime. Under the proposed EET structure individuals would have to pay a tax on the maturity proceeds. We expect EET to be introduced in a phased manner as against a one-time full and final introduction. This is because as yet there is much uncertainty with regards to the tax treatment on insurance products in the proposed EET structure. Moreover, we are not sure how well-geared the system is to implement the EET regime for the various investment avenues.
Section 80CCC limit on pension plans
As things stand today, individuals are allowed tax benefits of upto Rs 10,000 on premiums paid on pension plans. This limit falls within the overall Section 80C limit of Rs 100,000, which includes premiums paid on non-pension plans like term and endowment plans.
We expect this limit to be hiked in the forthcoming budget from the present Rs 10,000 level. In fact, this has been a long-standing demand of the life insurance industry. And rightly so; we believe there are several reasons for the limit to be upped.
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Planning for retirement involves long-term planning and therefore, long-term investments. And in a country where approximately 11 per cent of individuals (according to a statistic by a leading private insurer) are adequately prepared for retirement, incentivising retirement planning and therefore investments makes sense. Also, all over the world, pensions have usually been driven by tax sops. In a country like ours, where there is no social security system in place, planning for retirement should be given its due importance.
For the same reason, we are hopeful that this year's Budget has something for the pension sector. The PFRDA (Pension Fund Regulatory and Development Authority) has been set up for some time now, but we are yet to see any further development in terms of guidelines, finalising the companies that can offer pension products and other regulations.
Given the pressure on government's finances to provide for social security through PPF and EPF we believe kickstarting the pension sector could be just what the doctor ordered for both the government and the investor.
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