Seek separate tax exemption limit for life, medical insurance: Kotak Life Insurance CEO

A separate section must be carved out for life insurance premium under section 80C of the Income Tax Act in Budget 2020, said G Murlidhar, MD and CEO, Kotak Life Insurance. "A higher exemption limit would be beneficial for the industry. Right now, we are bunched in the same category as bank deposits and loans and Section 80C has become crowded," he added.

Payment of life insurance premium qualifies for tax deduction up to Rs 150,000 from the gross total income of an individual. But Murlidhar feels that Section 80C is overcrowded with options like public provident fund (PPF), equity-linked savings scheme (ELSS), school fees of children, contribution to the employee provident fund (EPF) etc and the Rs 1.5 lakh limit gets exhausted easily.

He wants Finance Minister Nirmala Sitharaman to create a separate category -- Section 80D -- for products like health insurance that too would qualify for a tax exemption. "We also want pension products to be treated on par with the National Pension System (NPS) from a taxation perspective," he added. NPS has a separate tax exemption limit of Rs 50,000 and has exempt-exempt-exempt status. This means that the corpus is not taxed during investment, on receipt of income on investment and at the time of withdrawal or maturity.

As far as the industry is concerned, Kotak Life expects the industry to sustain growth rates of around 15 percent levels, which Murlidhar said is significantly higher than the growth rate for the overall economy. “An important factor driving this is the composition of household financial savings, which has been marginally shifting in favour of financial products rather than physical assets like gold and property. This could be attributed to interest rates, industry initiatives and government policies,” he explained

Other favourable factors include a young population and growing working age group, increasing incomes, rising awareness about insurance, and an under-penetrated market. India is a highly under-penetrated market with life insurance penetration at under 3 percent. Within financial savings, insurance has been an important instrument for long-term savings. About 17 percent of incremental household financial savings are allocated to insurance.

Till November, the life insurance industry has maintained its steady growth in line with the past few years’ trend. New business premium (NBP) from April till November was Rs 1.7 lakh crore, with a year-on-year growth of 37 percent. Kotak Life Insurance saw a growth of44 percent YoY during the same period. Its Individual Adjusted Premium Equivalent (APE) has grown by around 17 percent in the period under review. Murlidhar expects the full-year growth to be around the same levels. APE includes 100 percent of regular premiums and 10 percent of single premiums.

Source: Money Control