Due to an absence of a social security system in India, only those in government services can be assured of a pension for their old age. To ensure a secure financial future for individuals, there is a dire need to differentiate between long-term and short-term savings, and incentivise the former. To ensure that people save for their old age, we need:
1.ย Tax benefit for long-term investments: The availability of similar benefit under Section 80C for both short and long term instruments ends up encouraging short term investments. In view of the above, a separate limit for long term investments such as life insurance and annuity under Section 80C may be considered. The definition of โlong-term investmentโ could be any investment with an investment horizon of at least five years. 2.ย Exemption from service tax: The Finance Act, 2008 levies service tax on the entire range of charges in ULIP (earlier the levy was restricted to only risk cover charges). This results in higher cost of insurance for customers. Even if a complete exemption from service tax on all ULIP charges is not possible, an exemption from service tax on charges other than Fund Management/Administration Charges would provide relief and bring parity between ULIPs and mutual funds. 3.ย Exempting annuities from taxation: Exempting from tax the principal (savings) portion of annuity pay-outs may be considered. Taxing the whole annuity payout, which is the current tax regime, leads to double taxation.
Providing impetus to health insurance sector With the increasing incidence of health spends and growing number of uninsured population, coupled with the gap in the current health cover, health insurance has been acknowledged as one of the most efficient means to meet and manage health spends. Therefore, the need of the hour is to ensure that each individual is adequately covered for any medical contingency that may arise. Enhancing tax exemptions on the premiums paid for health coverage can give great impetus to the health insurance segment. We would like to recommendation to the Government to: