Insurers lobby for tax sops to Ulips
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With Sebi off their backs, life insurance companies are now lobbying to see that tax saving investments in unit-linked insurance products (Ulips) are not taxed at the time of withdrawal in the revised direct tax code (DTC).
The representatives of the insurance industry will be meeting the finance ministry officials over this issue.
In the revised draft of the DTC, the finance ministry had said that only the withdrawals from “pure” life insurance products will be exempt from paying taxes. Ulips are hybrid investment-cum-insurance products. As Ulips are not “pure” life insurance products withdrawals from them will be taxed, said finance ministry sources.
Ulips are also popular because a subscriber gets tax exemption on the amount he/she invests in this products and the withdrawal is also tax free. In case the withdrawal is taxed, the Ulips popularity is expected to come down to some extent.
“We have maintained that Ulips are not pure investment products. We will approach the revenue department soon,” Life Insurance Council secretary general, Mr S.B. Mathur.
For life insurance companies Ulips is a very important product as it accounts for over 50 per cent of the total insurance business in the country. The finance ministry is planning to bring the legislation on DTC in the Parliament during the monsoon session.
It was the hybrid nature of the Ulip schemes that led to a tussle between market regulator Sebi and insurance regulator IRDA over who had jurisdiction over the product.
Sebi believed that since Ulips have an investment component, these are like a mutual funds and needed to be regulated and registered with it. On the other hand, IRDA argued that Sebi had no right to interfere in the Ulip business as they were insurance products.
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