Buying a Life Insurance will help you in Tax

The government recently announced a several measures for the policy holders; it would make things easy for the common man to understand the terms of the policy and has also decided to cut down on tax levied on life insurance. This has been done to give a boost to the insurance sector and encourage the people to invest more in life insurance and pension plans.

P. Chidambaram told the reporters that the decision regarding the tax exemption for various types of policies like pension plans and post retirement medical schemes would be taken by October 10, 2012. The customers are usually levied service tax on the first first premium paid on life insurance. He said that he has asked the revenue department to come up with innovative measures so that this scheme could be implemented.

He has already held meetings with the heads of several leading insurance heads of the nation and J. Hari Narayan, the head of IRDA (Insurance Regulatory Development Authority). He has asked Central Board of Direct Taxes and Central Board of Excise and Customs to give a detailed report on how the taxes are collected from the insurance companies and after that he said that he would try to find ways in which the agents would get better compensation.

All these measures are likely to give an much needed impetus to the investment sector and increase the sales of the insurance companies, which fell drastically during April-August, 2012. After the new measures are put to practice, they would be announced and implemented by IRDA. Some of the insurance companies are a bit skeptical; HDFC Standard Life MD & CEO Amitabh Chaudhry said that “On the face of it they look positive but it depends on how they are implemented”.

However, some of them are quite optimistic and have welcomed this move of the government. Sandeep Bakshi, the MD & CEO of ICICI Prudential remarked that “This is truly transformational. It addresses the core issue which is customer satisfaction. It will result in simpler products which are easy to understand along with protecting their interests”. www.insuranceneed.in provides a detailed and simplified explanation of the various life insurance policies and the tax benefits for policy holders.

In order to increase the investments, there is a likelihood that IRDA will allow homogeneous groups of people like nurses, members of society welfare associations, auto rickshaw drivers would be able to do group business and invest in a single type of policy together. Prior to this, only employee-employer group was allowed to do group business. This is likely to increase the sales of life insurance policies and other insurance plans.

The policy is expected to lure more investors to buy life insurance policies, who are more keen on investing on investing in National Pension System (NPS) because of the tax benefits of this scheme. The households who have limited incomes are expected to invest ore in life insurance policy as a result of tax exemption. This will boost an increase in savings rate of the country in the next decade.

The IRDA is expected to allow the insurance companies to invest in various kinds of special purpose vehicles (SPV) floated companies of the by private sector. This was earlier restricted to companies of public sector. So after the insurance companies witness an increase in sales due to government policies, they would be able to fund various kinds of infrastructure projects.

The various announced by Chidambaram reforms are likely to benefit the common man, the insurance companies and the economy of the country.