A look at tax benefits which will bring great joy to the Aam Aadmi

The Union Budget 2021-22 is almost here. There is hope and optimism regarding both, health related impact receding and a broad based economic recovery. The focus of this Union Budget will be to provide further impetus to bring the economy back on growth path.

The life insurance sector plays a key role in the long term development of a country and offers solutions around long term savings, protection and retirement. India has one of the highest protection gaps in the region at 83% and one of the lowest pension assets/GDP ratio at 4.8%.

The sector would like to see the following tax benefits in the upcoming budget on February 1:

— Offer tax-free income generated out of portion (to the extent of commutation allowed) invested in annuity

— Annuity plans provide financial security by way of guaranteed income for life and enable one to live with pride without compromising the standard of living, post retirement.

— Currently, the government has granted deduction up to Rs.1.5 lakh under section 80CCC of the Income-tax Act, 1961 (‘the Act’) for contribution made to pension plans and exemption under section 10(10A) of the Act for an amount taken as lump sum (commuted) on vesting/maturity of pension plans.

— At present, 60% commutation is allowed under pension plans. However, if an individual does not commute, any amount and opts for 100% annuity, the pension received is fully taxable. The Budget should remove this anomaly. Income generated from the exempt amount of commutation should be tax free. This will bring parity in the treatment of the amount invested, whether one opts for commutation or otherwise, to purchase an annuity plan.

— Single umbrella tax section for all pension products

— There are various tax sections under the Act for pension products. Merging all the tax sections under a single umbrella section for pension products such as pension schemes of various insurance companies and superannuation funds with NPS under section 80CCD would help bring in parity and achieve simplicity.

— Enhanced tax deduction for insurance premiums and inclusion under new tax regime

— The uncertainties of life and health have been magnified in the current COVID-19 situation and have increased the need and awareness to seek life and health insurance cover for self and family. Hence, enhanced deduction for life and health insurance premiums would enable an increase in insurance penetration. The tax benefit should be extended to those individuals opting for the new tax regime as well. This would help in reducing the government’s burden of medical expenditure due to Covid-19 related hospitalisation, its treatment and also provide a safety net for families in case of Covid-19 deaths.

(The writer is Chief Financial Officer, HDFC Life. Views expressed are personal)