The budget presented on Wednesday proposed that annual income from insurance policies beyond the aggregate premium of Rs 5 lakh a year will be taxed from the coming fiscal year. The new rule does not include returns from unit linked insurance plans (ULIPs) and the amount received on the death of a person insured via term plans.
Sitharaman said that the move must not be looked as one against another.
“Annual premiums over a certain threshold only are being taxed….if you are able to pay that kind of premium what will be your salary? It is not going to go against deepening of insurance,” Sitharaman said after addressing industry leaders, businessman and tax experts in her first post budget outreach.
On Friday ET had reported that life insurance companies are likely to approach the centre seeking some tweaks to the budget announcement that scrapped tax benefits for large-ticket traditional plans while making rebate-linked savings unattractive for the average taxpayer.
The insurance industry wants the policy premium taxation cut-off to be raised to Rs 10 lakhs from Rs 5 lakhs to soften the blow on their business. There is also a suggestion that traditional plans be brought under the long-term capital gains ambit, which will provide indexation benefits and reduce the tax outgo for investors.
Sitharaman said the industry suggestions are not yet come to her and she will only comment after she sees them.
Finance secretary TV Somanathan said the proposal to tax such high premium policies were after careful thought and data analysis because such policies were avoiding taxes in the garb of insurance.
“We have collected credible evidence that this was used as a tax avoidance device in the garb of insurance,” Somanathan said.
Sitharaman was also asked about the higher exemption proposed under the new tax regime. “For people who want to continue in the old regime, it is still there but there is now an option. As an adult you have to be the best judge on what suits you,” she said.