Mr. Raman Garg, Deputy CFO, Max New York Life Insurance

It is important to strike a good balance between growth and inflation while improving consumption. Directionally the budget should encourage long-term savings behaviour by Instituting separate limit for tax exemption for long-term saving instruments, increasing the limits under section 80 C, tax exemption on annuities and by removing the service tax levied on charges other than Asset Management Charges for ULIPs. Efficient management of fiscal deficit is critical to promote growth of Indian economy.Looking at the current situation the government must focus of a few core issues such as:Fiscal consolidation for long-term health of Indian economy·

Stimulus packages should continue including assured employment programs, infrastructure programs related to roads, easy access to loans for companies, lesser interest rate on loans.· Implementing GST as early as possible would help the Government benefiting from lesser tax from more number of people leading to higher income and greater compliance.Increase disposable income in the hands of individuals·

Keeping in view high inflation which has significantly dented disposable income in the hands of individuals, Finance Minister should provide some income tax relief to individuals especially in lower tax bracket so that they could continue investing in long-term savings instruments. · Cess should be abolished to generate more disposable income in the hands of people. This will also help in making the tax structure more simplified.Promote long-term investment and savings habitSeparate limit for tax exemption for long-term saving instruments like life insurance or increasing the limits under section 80 C and 80D for tax exemption on life and health insurance premium could be one way to promote savings behaviour. ·

Annuities should be made tax exempt; alternately only the interest on contribution to pension schemes should be taxed (instead of the 1/3rd rule). Increase in exemption limits for gratuity payments to Rs 10 lacs for non-government employees and increase in exemption limit of Employers’ contribution to any approved superannuation fund from Rs 1 lac to Rs 5 lacs could be another way to promote savings habit·

The Government may also evaluate providing tax benefits (including service tax exemption) on promoting insurance and pension products below annual threshold of Rs 1000/- premium/contribution. ·

Increase exemption limits for gratuity payments to Rs. 10 lacs for non-government employees·

Raise exemption lmit of Employers’ contribution to any approved superannuation fund from Rs.1 lac to Rs. 5 lacsSpecific to Life Insurance Industry ·

Increased FDI ceiling to 49 % 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· Service tax should be levied only on Fund Management Charges incase of ULIP products. Charges should be exempt from service tax. Currently this is inequitable with other asset management companies like mutual funds where service tax is charged only on the fund management fees & puts ULIP schemes at a significant competitive disadvantage.·

The normal period of eight years for carry forward of losses may not sufficient to absorb the losses of Insurance Business in Private Sector. Therefore, the Government should consider introducing provisions in the forthcoming budget for extending the period of carry forward for life insurance companies from 8 yrs to 15 yrs considering the economic slowdown, shortage in supply of talent and high attrition leading to increase in wages, increasing operating cost due to high inflation and cost of increasing penetration in rural markets.·

MAT applicability on Insurance companies at reduced rates based on financials as prepared under IRDA guidelines may also be considered.Others·

ESOP Taxation: As per new perquisite rules, the fair market value (FMV) on date of exercise has to be taken to calculate the perquisite value. This has given rise to a practical difficulty as the difference between the market value and the exercise price is only a notional profit since the employee has not yet sold the shares. But the employee has to pay tax at the time of exercise of option, which requires cash. This has resulted in the employee needing to sell the shares immediately, just to pay tax, and the entire reason of being allotted stock options to participate in the growth of the company stands defeated.Our recommendation is that the ESOP benefit should be taxed at the time of actual sale of the shares in the form of capital gains on the excess of sale price over exercise price.

Mr. Raman Garg, Deputy CFO, Max New York Life Insurance