Chennai, March 1:
Generally satisfied at the budgetary proposals of union Finance Minister Arun Jaitley for 2015-16, insurance industry officials however expressed their fears of being pulled into the “cess pool” of the Swachh Bharat Cess.
Experts also told IANS that a clear legal clarity is needed on the proposal to hike the limit for deduction on health insurance premium.
Presenting the budget Saturday, Jaitley proposed to create a new cess called Swachh Bharat Cess, for which a cess of two percent will be levied as service tax on all or any of the taxable services for financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
“The proposed Swachh Bharat Cess of two percent on the value of any taxable service will have a cascading effect on the cost of services including insurance,” C.L. Baradwaj, chief risk officer, Bharti Axa Life Insurance, told IANS.
He recalled the service tax was initially levied on telephone services and general insurance policies at five percent and over the years the scope was widened to include several other service sectors.
Experts told IANS that it is wrong to call the two percent levy on services as Swachh Bharat Cess as cess is generally levied on a tax as additional charge.
On the other hand Swachh Bharat Cess is actually an additional service tax. It, as service tax, will be levied on all or any of the taxable services at two percent rate on the value of such services, experts told IANS.
As a tax sop to the middle class Jaitley also proposed to increase the deduction in respect of health insurance premium from Rs.15,000 to Rs.25,000, while for senior citizens, the limit will stand increased to Rs.30,000 from the existing Rs.20,000.
“However, in the Finance Bill 2015, the provisions relating to the above increase are missing,” Baradwaj said.
Agreeing with him was D.Varadarajan, Supreme Court advocate and an expert in insurance/company/completion laws.
“The proposals of Jaitley has not been properly reflected in the proposed amendments to section 80D of the Income Tax Act, as contained in the Finance Bill, 2015, if one were to go through the proposed amendments in fine-print,” Varadarajan told IANS.
The deduction for health insurance premium falls under section 80D (2) (a) and (b) or (3) of the Income Tax Act.
“Clause (a) and Clause (b) of subsection (2) of section 80D (which provide for the above deductions) have not been amended to increase the limit from Rs.15,000 to Rs.25,000. Only for Hindu Undivided Family, the deduction has been specified by substituting a new sub-section (3) to Section 80D,” he said.
According to Baradwaj, the non-amendment of clauses (a) and (b) would lead to restriction of exemptions.
On the other hand, the explanations to the Finance Bill clearly states the hike in deduction limits for amount’s paid towards medical insurance for self, family and parents.
“There seems to be drafting lacuna or inadvertent omission in the proposed amendment to section 80D, inasmuch as the existing limit of Rs. 15,000 for individual assesses as contained in section 80D(2)(a) remains untouched. This would also be evident from the Explanatory Memorandum appended to the Finance Bill, 2015 in regard to the proposed amendment of section 80D,” Varadarajan said.
He hoped this anomaly would be set right at the time of passing the Finance Bill, by suitably amending Section 80D.
Baradwaj said the increase in service tax from 12.36 percent to 14 percent would increase the cost of input services for insurance companies as well and consequently the CENVAT credit.
Alternative Service Tax rates for bundled life insurance products increased to 3.5 percent for first year’s premium and 1.75 percent for renewal premiums, he added.
“The life insurance sector has been completely ignored in the budget. We expected a separate limit of Rs.50,000 on pension plans, but not to be. However, the finance minister has increased limit from Rs.100,000 to Rs.150,000 Lakh in New Pension Scheme,” said Manoj Kumar Jain, CEO and whole time director, Shriram Life Insurance Company. IANS