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ULIPs may lose flavour sans spice of tax advantage
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Insurers to appeal against proposed move to tax maturity proceeds.
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Remya Nair
Mumbai, June 15
Unit-linked insurance policies (ULIPs), which constitute the bulk of the business for insurance companies, may cease to be a popular investment product if the revised discussion paper on the Direct Taxes Code (DTC) is implemented in its present form.
This is because the revised discussion paper has recommended that only approved pure life insurance products and annuity schemes be subject to EEE (Exempt Exempt Exempt) method of tax treatment.
“Approved pure life insurance products and annuity schemes will also be subject to EEE method of tax treatment”, the revised paper said.
This implies that the final pay-out from unit-linked plans could be taxed, said officials from the insurance industry.
The DTC had proposed tax deduction on the final pay-out of insurance policies, while exempting the policy premium at the time of contribution and the interest on it. Life insurance companies had asked that the current system of tax exemption for maturity proceeds be continued. They had made a representation to the Government that the EEE method of computation should continue as against the Exempt Exempt Tax (EET) method proposed.
It seems that while the government has agreed on exempting term and whole life policies, it has decided to retain unit-inked products under the EET category.
Insurers fear that this move will hurt ULIP sales. ULIPs constitute almost 80-90 per cent of the private life insurers' business and around 65 per cent for Life Insurance Corporation of India.
“It is a relief that at least death claim benefits have now been exempted from tax. But it seems that ULIPs have been retained under the EET regime. We will have to go back to the government again with our representation”, said Mr Kamalji Sahay, Chief Executive Officer, Star Union Dai-ichi Life Insurance Company.
The Life Insurance Council is expected to make a representation to the Government for including ULIPs under the EEE category.
Insurers are also happy that annuities, which were taxed under the existing system, have been exempt from tax.
Currently, up to one-third of the maturity amount when withdrawn is treated as tax-free. However, the remaining two-third amount was taxed as per the individual's tax slab.
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