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Insurance: Budget may hit salaried class!
February 22, 2005 07:43 IST
The Budget is just around the corner. And with everyone and his uncle trying to predict what lies in store in the forthcoming Budget, here's what we think can unfold in the Budget with respect to life insurance.
What should happen?
The Kelkar Task Force had made several recommendations in its report. An ideal scenario for the lay investor would be in terms of enhanced tax benefits for him.
In a country where retirement planning is primarily looked at as a tax-saving tool, pension reforms are gradually creeping in.
A long-standing demand of the insurance sector has been that the Budget should promote pension savings further by increasing the amount allowed as deduction under Section 80CCC.
Under the current provision, there's an upper limit of Rs 10,000 for investments in pension/retirement plans. Industry honchos feel this limit should ideally go up to Rs 30,000.
Section 88 tax benefits are another contentious issue. The Kelkar Committee had recommended that Section 88 be phased out. Section 88 benefits cover a gamut of instruments like National Savings Certificate, Public Provident Fund, mutual funds (equity-linked saving schemes), infrastructure bonds and insurance.
While it is likely that Section 88 benefits could be reduced for NSC, PPF and infrastructure bonds, we would like to see Section 88 benefits on insurance to be persevered with.
This is because insurance penetration levels in the country are still very low and worldwide tax-saving has always been employed initially as an incentive to encourage insurance.
One more suggestion by the Kelkar Committee was to rework the pension structure. The structure envisages that the pension monies be divided into two tiers, I and II: Tier I which would go into an account from where the contributor will not be able to withdraw his money till he reaches retirement age and Tier II from where he can withdraw/invest money freely until retirement age.
This suggestion is likely to be implemented going forward.
What is likely to happen
In all probability, benefits under Section 88 will be watered down. We are likely to see Section 88 benefits on PPF, NSC, infrastructure bonds and insurance decline from current levels. This will hit the salaried class where it hurts.
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