The life insurance industry has serious concerns that the minimum alternate tax of 2 per cent proposed in the draft Direct Taxes Code will adversely impact the health of companies. Further, it wants long-term investments to be defined as those which have a tenure of 10 years and not 20 years as proposed in the code.

The Life Insurance Council, an industry body, feels that insurance companies’ assets belong largely to policy holders. “We are suggesting that MAT should be applied at a lower rate only on shareholders’ assets and not on total assets. A 2 per cent MAT is very high,” said S B Mathur, secretary general, Life Insurance Council. The way DTC is framed right now, MAT may also lead to double taxation. The government proposes to tax insurance companies through MAT and then tax policy-holders as well.

Further, the draft code defines 20 years or more as a benchmark for long-term investments. Therefore, it proposes to tax maturity proceeds of life insurance policies that have a policy term of less than 20 years and premium of more than 5 per cent of the sum assured. According to the current laws, maturity proceeds of life insurance policies are not taxed. The proposed change will have huge liability on life insurers. The insurance industry is opposing this recommendation and suggesting that this limit should be brought down to 10 years.

Although investment in insurance products qualifies for exemption under Section 80C, the maximum tax beneft is limited to one-fifth of the sum assured. The council has recommended that premium amount that doesn’t qualify for tax exemptions at the investment stage should not be taxed at maturity. “We have suggested that the policy premium which is not exempted should not be taxed at maturity as it will lead to double taxation,” said Mathur.

... contd.