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IF LIFE insurers can convince the finance ministry, investments in long-term insurance policies with maturities beyond 10 years may receive special income-tax incentives. The income-tax deduction limit for investment in health insurance may also be enhanced to Rs 30,000 per year from the present Rs 10,000, and immediate annuity may be eligible for tax deductions if insurers have their way with the Centre.

An immediate annuity enables an individual to earn a regular guaranteed return, starting immediately on purchase of such products. It is generally bought as old age pension. “The cost of medical insurance is steadily rising. These tax exemption limits were introduced some years ago and need to be increased several fold to reflect present levels of income and coverage requirements besides providing reasonable health cover to the family,” insurers said in their Budget memorandum. “With government spending limited and employer-provided health insurance restricted to only a tiny section of the overall population, an appropriate tax break will lend the necessary motivation for individuals to go for health insurance,” said an IRDA official.

“This will also help in accessing advanced medical care like cancer treatment. Increase in insured base will imply that more people can access medical/healthcare facilities, which in turn will spur the further expansion of this sector,” insurers have said in the memorandum.

“In its pre-budget memorandum, a copy of which has been sent to the insurance regulator IRDA, life insurers have also urged the government to introduce a separate limit of Rs 50,000 for long-term policies that will attract income-tax deductions,” senior industry officials told ET. In insurance parlance, insurers have asked for a ‘ring-fenced’ deduction of Rs 50,000 to be made available within the present Section 80C for savings with tenure of 10 years or more.

The Income-Tax Act allows deduction on income-tax for individuals on investment in any savings instruments of varying duration up to a limit of Rs 1 lakh. These include instruments like bank deposits as well as expenditures like education expenses and medical treatment of diseases like HIV/AIDS and cancer.

“Currently, investments in insurance with maturities of over 10 years are given the same importance in terms of income-tax deduction, as are offered to any other savings instruments,” he said.

The life insurance industry has been requesting for a separate incentive for long-term savings, which would generate capital for infrastructure projects and provide stability to the stock markets. “Life insurance and pension products encourage long-term savings and hence, need tax incentives which would influence savings behaviour,” said the official.

Insurers have also sought a waiver of the restriction in availing of 80C and 10(10D) benefits which stipulate that sum assured should be at least five times the premium paid. Currently, the tax deduction is not available if sum assured is below five times the premium paid.

On the rationale for offering deductions for IRDA-approved immediate annuity plans, the official said: “All insurance products are auto approved for deduction under sections of the Act except for immediate annuity product.”

“The Act allows deduction for premium payment only for government notified immediate annuity products. Since this product is also approved by IRDA, the requirement of prior approval of the Centre may be modified to provide that IRDA is the competent authority for approval,” he explained.

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