Non-life insurance companies say premium charged on policies sold by them is likely to increase from next year because of a proposed change in the way their income is calculated.
The Union Budget for 2009-10, presented on July 6, wants to classify profits or gains made from their investment as business income, which would be taxed at the corporate tax rate. Similarly, loss from the sale of investment can be set off against taxable income.
At present, profits from the sale of investment by non-life insurance companies are not included in their business income. State-owned general insurance firms make a profit of Rs 2,000 crore (Rs 20 billion) from the sale of equities on an annual basis.
"It will mean a capital loss of Rs 600 crore (Rs 6 billion). Therefore, the only way insurance companies will deal with it is by increasing the rate of premiums," said M Ramadoss, chairman and managing director of state-owned Oriental Insurance Company Ltd, at a conference organised by industry body Ficci.
Analyasts say that the intent of the exemption was to provide boost to the market and was intended to be temporary in nature. Adding to this, the recent de-tariffing of insurance companies has made the market open to private players and has led to competitive pricingso the effect on customers, if any should be very limited.
"When the exemption was introduced there was only the government-operated insurance industry, now that there are private operators in the fray,the government has probably chosen to review the exemption in this changed context," said Amit Agarwal, principal consultant, Price Waterhouse Coo-pers.
The case for continuing the exemption was one of the major demands of insurance companies from the Budget, and the proposed amendment has disappointed the major players, who say they have no choice but to pass on the effects to the customers.
The amendment is set to be effective from April 1, 2011, and will apply from the assessment year 2011-12.
The finance ministry said the change was consistent with regulations issued by the Insurance Regulatory Development Authority on "preparation of financial statements and auditor's report of insurance companies" in 2002.
Here non-life insurance have to classify their profit or loss on sale of investment in the profit and loss account or revenue account.
IRDA to come up with revised IPO norms
IRDA Chairman J Hari Narayan on Friday said the regulator would come up with revised guidelines on allowing insurance companies to sell equity under Initial Public Offer.
At present, IRDA norms prohibit insurance firms from tapping the IPO route in the first 10 years of their operations.
