A special interest paper released in Mumbai yesterday has recommended a consistent, stable and simple tax environment for development of a modern insurance set-up in India.
The paper, “Taxation Reforms: Fostering Development of the Indian Insurance Sector”, developed by City of London in association with JMP Advisors, has suggested that to set up an internationally competitive insurance market place in India, several taxation reforms may need to be addressed.
The suggested recommendations, from the taxation perspective, aim to ensure balanced industry growth and help India become a leading international (re)insurance centre.
The paper examines the current tax environment from the perspective of direct and indirect taxes. Within indirect taxes, it also examines the potential implication that GST will have on the sector. The current regulations with reference to direct tax and indirect taxes including the tax provisions applicable in respect of International Financial Services Centre also get a look-over.
In the ambit of direct taxes for the life insurance sector, the special interest paper makes several recommendations which include:
- An additional tax deduction may be provided for life insurance premium, beyond the overall limit of INR150,000 (US$2,330) currently available.
- Life insurance and pension policies should be treated as capital assets since these are essentially financial instruments. Accordingly, the benefit of exemption from capital gains under section 10(3), benefit of holding period, lower rate of tax under section 115BBB and benefit of indexation under section 48 of the IT Act should be extended to life insurance and pension policies.
For the non-life/ general insurance industry, the special interest paper has suggested that this industry be treated at par with other industries. Accordingly, the benefit of exemption for Long Term Capital Gains should be available to it. It has made several other recommendations which also includes reducing the corporate tax rate initially to 25% (in consultation with the insurance industry), based on the proposed tax rate for all domestic companies as announced by the Finance Minister. This rate can be further reduced in a phased manner, to be competitive with global tax rates.
For the reinsurance sector, including the global reinsurance centre, the special interest paper has recommended a separate taxation regime, keeping in mind the peculiarities of the reinsurance business.
It also lays down several progressive recommendations for the three sectors, life insurance, non-life insurance and reinsurance sectors, with respect to Goods and Services Tax (GST).
The City of London Corporation is the local authority of the business district of London. It is an apolitical body and works to strengthen relationships with international markets, by engaging with policy makers and firms to increase bilateral trade and investment in financial services. City of London established its India Office in Mumbai in 2007.