Pre-budget memorandum
The announcement follows a dramatic day that saw confusion prevail over numbers.
Budget expectations by Rajesh Sud, CEO and MD of Max New York Life Insurance.
Pre-budget memorandum
With strong fundamentals the Indian economy has tremendous potential to grow at 7-8 per cent a year. However, it is at a phase where it is critical for the Finance Minister to strike a right balance between growth and inflation while improving consumption at the same time.
Indian economy – Health
• Fiscal deficit is a big concern for Indian economy currently. The government should try and control the fiscal deficit through reduced government expenditure and creating increased earning opportunities.
• Inflation is currently under control due to reduction in food inflation but petroleum prices and prices of other commodities may have an impact on inflation. Balancing inflation and growth is a big challenge before the government. Keeping this in view, inflation which has significantly dented disposable income in the hands of individuals, Finance Minister should provide relief in income tax burden to individuals especially in lower tax bracket so that household savings rate could be maintained.
• There is also a need for better physical infrastructure, higher quality education and higher skill quality labour. Therefore, the Government should continue its focus on assured employment programs, infrastructure programs related to roads and easy access to loans for companies to support the expected GDP growth rate.
Suggestions on core issues both in the proposed Union Budget and other proposed tax regimes are as mentioned below:
Budget Changes
Direct Tax
A) Personal Income-Tax
• Promote long term savings habit by providing separate tax exemption limit of Rs. 2 lakhs for long-term saving instruments like Life Insurance.
• Increase slabs for personal taxation in line with proposed limits in DTC i.e. income exempt upto 5 lakhs thus generating more disposable income in the hands of people.
Education cess should be abolished completely to generate more disposable income in the hands of people
B) Corporate Tax
Indian life insurance market is facing numerous challenges for growth & is among the least profitable across Asia. The budget should address issues that will help make this industry attractive for both policyholder and shareholders.
• Abolition of Education Cess: Cess should be abolished completely to generate more disposable income in the hands of corporate. This will also help in making the tax structure more simplified.
C) Other Suggestions
• Increase of FDI ceiling in Insurance Industry to 49 per cent. Increased FDI ceiling can bring in the much-needed capital for the growth of the sector and long-term development. This will also enrich the business by bringing world-class business practices and processes, expand distribution capabilities and deepen market penetration.
• Investments in saving instruments including risk cover, pension products, etc are eligible for aggregate deduction of Rs 1 Lakh. We recommend a separate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits on life and health insurance premium could be looked at.
Indirect Tax
• Cenvat credit reversal of 20 per cent introduced by Budget 2011 should be recalled. The life insurance industry in India is still at a nascent stage and almost all companies in the sector are having huge accumulated losses. At present, all revenues earned by a life insurance company are fully taxable. A blanket restriction on the cenvat credit for tax paid on inputs and input services are against the principles of a fair and neutral tax.
• Presently Service Tax on FMC on Management of Investment under ULIP is charged on rates of 1.35 per cent or actual charges whichever is higher. Life insurance companies are charging FMC at rate lower than IRDA prescribed maximum of 135 bps. This is resulting into excess Service Tax. Recommended that ST should be charged on actual FMC amount.