The Budget for 2003-2004 was likely to double the tax benefit available under Section 80 CCC(i) to Rs 20,000 for investments made in pension plans in line with the Kelkar committee recommendations, finance ministry sources said.
At present, Section 80 CCC(i) allows deduction from gross income for investments in any pension product up to a ceiling of Rs 10,000.
Insurance companies have been urging the government for the past two years to allow a tax deduction ceiling of at least Rs 40,000.
The Insurance Regulatory and Development Authority had proposed a hike in the exemption on pension savings to Rs 40,000.
The IRDA had submitted its draft report on pension reforms last year to a seven-member committee that included representatives from four ministries: finance, labour, social welfare and law.
The industry expects the creation of a sub-limit under Section 88 for insurance and pension products.
The tax issue had been addressed because pension products needed to be on par with other financial products, said a source close to the finance ministry.
"Tax incentives should exist, but should be restricted and directed into infrastructure and long-term savings products, such as retirement benefits," insurance industry sources said.
The recommendations of the VU Eradi Committee are also expected to come through. The committee looked into issues pertaining to the taxation of life insurance companies.
At present, the Life Insurance Corporation is taxed at 12.5 per cent on its valuation surplus.
However, as new companies would not be making any surplus for at least five to seven years, according to their respective business plans, the government had to take this into account before taxing them, the report said.Run-up to the Budget 2003
