The Life Insurance Council has opposed a proposal embodied in the
Draft Direct Taxes Code which says policy holders be taxed at the time
of withdrawal of insurance fund.
S B Mathur, Secretary General
of the statutory body, said either the proposal be changed to retain
the present system of exempting a life insurance holder from tax at the
time of withdrawal, or tax should be levied only on real value of the
withdrawn sum.
Constituted under the Insurance Act, the Council
is a forum that connects various stakeholders in the insurance
sector--the government, regulator and the Public--and includes all life
insurers.
The code proposes an exempt, exempt, tax regime (EET)
against the present exempt, exempt, exempt system(EEET). EET means that
while contribution to insurance, return on that fund will be exempted
from tax, withdrawal will be taxed.
The current EEE mode exempts the insured at all the three phases.
"Either the present system (of EEE) should continue or we should be given the benefit of indexation," Mathur said.
Indexation
means that the withdrawn value of money be reduced to real value by
factoring in the price rise of each year. If that is done, the tax
would be reduced.
Mathur said insurance is a long-term
contract. "If EET is applied, then we should be given the benefit of
indexation. Real value of money goes down. Basically, the code proposes
to tax long-term savings on nominal value."
The code says withdrawals should be included in the income of the assessed during the relevant year and taxed accordingly.
The EET mode of taxation, the code says, would encourage long-term savings by the people.
A
bill on tax code is yet to be prepared. Finance Minister Pranab
Mukherjee has assured that the bill would be tabled in parliament after
addressing all concerns.
source: Financial Express
