Union Budget must give a fillip to long-term savings
As a year ends and a new one starts, it is time to review your past and plan for the future. And February is the right time to do so an exercise. The economy is expected to grow at 8.6% in the current fiscal. With a growing domestic market and transparent and well-regulated financial sector, Indian economy has tremendous potential to continue this growth rate.
However, the economy is passing through a critical phase where the finance minister needs to maintain a fine balance between inflation and growth, manage fiscal deficit and position India as the preferred long-term investment destination.
The government should reduce the fiscal deficit through lower government expenditure. A high inflation rate is also a potential risk to the economy which may be corrected by addressing supply-side bottlenecks. Keeping in view that high inflation has significantly dented disposable income in the hands of individuals, the finance minister should consider providing relief in income-tax burden to individuals, especially in the lower tax bracket so that household savings rate could be maintained.
An economy in its high-growth phase needs infrastructure to keep pace with the growth. In India, infrastructure is feared to be the biggest bottleneck for the continued high growth in GDP. Indian households, with growing ambitions for the next generation, also need a large corpus to meet their life stage goals.
Both these require sustained long-term savings. That apart, in the absence of a social security system and prevailing low protection cover, there is a need to promote pure protection.
Life Insurance Industry: The industry can play a critical role in developing a secure nation by promoting long-term savings and providing protection against unforeseen events in life. Investments in saving instrumen! ts inclu ding risk cover and pension products are eligible for aggregate deduction of Rs Rs Rs 1 lakh. We believe that there should be a separate limit for tax exemption for long-term saving instruments.
The proposed DTC provides a separate deduction limit of Rs 50,000 for life insurance, health cover and tuition fees. With high education inflation, a large portion of this deduction may be exhausted for paying tuition fee for kids. We suggest that limit should be increased to a minimum of Rs 1.5 lakh and should be exclusively for life insurance. This will not only help households in meeting their long-term needs, it would also provide the nation with long-term funds for infrastructure development.
As per the proposed DTC, the amount received as proceeds from a life insurance policy will be taxable as income from residuary source. Payments on maturity should be allowed as deduction without any condition. Under no circumstances should EET be applicable to policies issued prior to enactment of DTC as policyholders have invested with the intent of tax-free maturity proceeds.
Service tax on life insurance premium is currently borne by the policyholders. Any relaxation will promote savings in life insurance. Services of insurance agents should be exempt from the service tax. The liability to deposit service tax on insurance auxiliary services could be shifted from service recipients to service providers with suitable provision for timely refund of any excess credits.
However, the economy is passing through a critical phase where the finance minister needs to maintain a fine balance between inflation and growth, manage fiscal deficit and position India as the preferred long-term investment destination.
The government should reduce the fiscal deficit through lower government expenditure. A high inflation rate is also a potential risk to the economy which may be corrected by addressing supply-side bottlenecks. Keeping in view that high inflation has significantly dented disposable income in the hands of individuals, the finance minister should consider providing relief in income-tax burden to individuals, especially in the lower tax bracket so that household savings rate could be maintained.
An economy in its high-growth phase needs infrastructure to keep pace with the growth. In India, infrastructure is feared to be the biggest bottleneck for the continued high growth in GDP. Indian households, with growing ambitions for the next generation, also need a large corpus to meet their life stage goals.
Both these require sustained long-term savings. That apart, in the absence of a social security system and prevailing low protection cover, there is a need to promote pure protection.
Life Insurance Industry: The industry can play a critical role in developing a secure nation by promoting long-term savings and providing protection against unforeseen events in life. Investments in saving instrumen! ts inclu ding risk cover and pension products are eligible for aggregate deduction of Rs Rs Rs 1 lakh. We believe that there should be a separate limit for tax exemption for long-term saving instruments.
The proposed DTC provides a separate deduction limit of Rs 50,000 for life insurance, health cover and tuition fees. With high education inflation, a large portion of this deduction may be exhausted for paying tuition fee for kids. We suggest that limit should be increased to a minimum of Rs 1.5 lakh and should be exclusively for life insurance. This will not only help households in meeting their long-term needs, it would also provide the nation with long-term funds for infrastructure development.
As per the proposed DTC, the amount received as proceeds from a life insurance policy will be taxable as income from residuary source. Payments on maturity should be allowed as deduction without any condition. Under no circumstances should EET be applicable to policies issued prior to enactment of DTC as policyholders have invested with the intent of tax-free maturity proceeds.
Service tax on life insurance premium is currently borne by the policyholders. Any relaxation will promote savings in life insurance. Services of insurance agents should be exempt from the service tax. The liability to deposit service tax on insurance auxiliary services could be shifted from service recipients to service providers with suitable provision for timely refund of any excess credits.
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