Budget 2017: Lower tax regime tops BFSI sector’s wishlist

Just emerging out of the demonetisation effects, India Inc is looking forward to a Union Budget that is growth focussed, encourage spending by consumers, provides tax relief and supports the march towards building a truely Digital India. 

The BFSI (Banking, Financial Services and Insurance) sector has high hopes from Finance Minister Arun Jaitley. While most of the cash intensive sectors like retail trade and real estate were hit hard by the ‘notebandi’ move of Prime Minister Narendra Modi in November 2016, the banking and insurance sector was benefitted by the sudden stroke of demonetisation. Data released by IRDAI reveal that the insurance industry, which was growing at a rate of 28 per cent on a month-on-month basis, grew more than 40 per cent in November last year. Also, various reports suggest that aided by the investor awareness environment and a plethora of positive measures, unlimited opportunities lie ahead for the BFSI sector. 

Adgully spoke to a cross-section of BFSI majors to know more about the industry’s expectations from Budget 2017-18, as well as the impact of the GST regime. 

Budget 2017 Wishlist 

“Insurance companies like us are striving to reach the doorsteps of every single household and secure each and every single life in India – a large mass of which belongs to the low income group strata. Even though we’re coming up with low ticket affordable products bring insurance and security within reach of the masses, the entire initiative will get a proper boost only if the budget provides a tax relief. 

We are definitely looking forward to a lower tax regime, coupled with higher tax exemptions to or at least a separate income tax limit for the deductibility of life insurance premium, over and above the existing limit. This will not only ensure everyone opts for life insurance, but also helps them build a long-term portfolio providing adequate coverage. Similarly, higher tax exemptions on health insurance and reduced service tax on premiums encourage higher penetration. And to keep the momentum going for health insurance like last year, this year too, the Government should focus on making quality health care affordable for all economic sections of the society – especially the weaker ones. Also, to give a fillip to the adoption of NPS, it should be brought at par with EPF or PPF by allowing full tax exemption on withdrawals.” 

“Three vital requirements top the wishlist for Budget 2017: 

Income Tax and Corporate Tax
It is expected that Government may announce simplification in Income Tax laws in line with the suggestions of Income Tax Simplification Committee, which will make Indian tax laws more competitive with respect to global economies. It would be interesting how the Government deals with delayed GST, which was scheduled for implementation from April 1, 2017. On the direct tax side, Corporate Tax rate is expected to come down to meet the target to reduce Corporate Tax to 25 per cent in four years, as announced by the Finance Minister in his Budget speech last year. Individual Income Tax exemption limit and corresponding changes in income tax slabs are also expected which will give greater disposable income in the hands of tax-paying households. 

For elderly customers seeking retirement and life insurance solutions
There is an urgent and long-standing need for streamlining Tax Saving vehicles, especially for elderly given the expected scenario of falling interest rates. The Union Budget should move annuity out of tax bracket to provide relief to almost 10 crore senior citizens of India. To bring parity in all retirement products and to provide a bouquet of social security products to senior citizens, additional exemption limit of Rs 50,000 under NPS should be extended to life insurance products as well. 

In addition, the Income Tax regulations under section 10 (10D) provides for income tax exemption only if the premium to sum assured ratio is 10 per cent. Suitable changes should be made to align it to the provisions prescribed by IRDAI, which will help senior citizens also to avail income tax benefits on life insurance. Alternatively, section 10(10D) benefits should be allowed on term of policy (10 years and above) rather premium to sum assured ratio. 

For building disciplined savings habit and create a secure society
Section 80C of the Income Tax Act provides for a deduction of up to Rs 1.5 lakh for investments in various medium and long term saving instruments and other inclusions like tuition fees. This leaves limited space for long-term savings instruments like life insurance. In order to help Indian households create a portfolio for their long-term needs, it is recommended that the Budget should create a separate limit for the deductibility of life insurance premium under 80C, which should be over and above the existing limit. Any prospective revenue loss due to this additional limit will get amply compensated by tax revenue from new entities/ individuals expected to come under the income tax scanner post demonetisation.” 

“After the bold and historic decision of demonetisation, the expectation from the forthcoming budget has gone up particularly in relation to income tax. Many citizens have gone through the tough liquidity position and they have accepted the harsh move in anticipation of tax reliefs in the next Budget. 

The minimum exemption limit is expected to be increased from Rs 2.5 lakh to Rs 3 lakh or even Rs 3.5 lakh. There may be no change in the 30 per cent tax bracket, which starts from an annual taxable income level of Rs 10 lakh. Even the Prime Minister hinted in his speech on the evening of December 31, 2017 that the total number of tax payers in the 30 per cent tax bracket are only 25 lakh and the actual number may be much higher. 

Another expectation is for an increase in deduction limit u/s 80C from Rs 1.5 lakh to Rs 2 lakh. In order to boost equity market, this additional deduction may be attributed to investment in ELSS schemes only. Similarly, in order to grow the Pension Sector, deduction limit u/s 80CCD(2) towards contribution to NPS may get enhanced from Rs 50,000 to Rs 1 lakh. On the whole, some relief may be announced but these reliefs will be much lower than what the middle-class income tax payers are hoping for.”

GST Impact on the Indian economy 

Sanjay Tripathy: “GST will be a big game changer in the Indian economy. It will transform India into a common market ringing in increased productivity and efficiency – with the taking away of the complex multiple taxes. It will expand trade and commerce, reducing cost of Made in India goods. Though in the short term there will be a period of adjustment and a bit confusing with the industry grappling with the inter-sector impact, affecting consumption and growth, but it will be mostly favourable to all in the long term. A lot hinges on the tax rate decided, of course. At the recommended 17-18 per cent, service providers could face an increased tax burden, while manufacturers could see a fall. That could cause manufacturers to not pass through benefits and service providers to pass on costs, moves that would lower consumption and overall growth. At present, the effective indirect tax rates on goods and services are 22.5 per cent and 15 per cent, respectively.” 

Rajesh Sud: “GST is undisputedly the single largest indirect tax reform since Independence. It has the ability to change India’s indirect taxation landscape, thereby having a positive impact on the economy as a whole. Economists have deliberated at length the impact GST will have on India’s GDP. With the services sector accounting for 60 per cent of the GDP, the impact of GST on the service sector will run deep. The introduction of GST will have a definitive impact on services offered by the life insurance sector.”

GST Impact on the BFSI Sector 

Sanjay Tripathy: “GST will have a pretty definitive impact for the BFSI sector. It is important that the GST rate on life insurance services be taxed at a lower rate in order to ensure that the benefit of insurance is availed by each and every person. A financially secure society will focus more on efforts towards progress rather than worrying about how to economically sustain themselves. Hence, by making life insurance more expensive, we will be taking away a well-established means to build a financially secure society. Further, there is a need to reduce the administrative burden of compliance. 

When it comes to banking, with the implementation of GST, a moderate increase in the cost of financial services such as loan processing fees, debit/ credit card charges, insurance premiums, etc., is expected. This might also make certain products or services costlier for the common man.” 

Rajesh Sud: “The potential of the life insurance sector in India is limitless as it offers financial protection for the life stage goals of the common man. However, the penetration of life insurance is abysmally low and it requires a boost to enhance its coverage and reach.  GST regulations could encourage greater penetration of life insurance and hence, help in building a secure nation. Seeking to levy GST on life insurance services would be in contrast to several countries, including the EU, Africa, Australia, Malaysia and Singapore, where life insurance is a social security benefit provided by the Government. Taking cues from these countries, it is important that the GST rate on life insurance services be zero rated or else taxed at a lower rate in order to ensure that the benefit of insurance is availed by each and every person. The Government had exempted Pradhan Mantri Jeevan Jyoti insurance policies from applicability of serviced tax and there were encouraging results from the society. This shows that the Government recognises the fact that life insurance policies go a long way to provide social security. The lower rate should also apply to key input services such insurance auxiliary services and re-insurance services, else taxing the said services at the standard rate of 18 per cent would result in an inverted duty structure.” 

Anil Chopra: “Since implementation of the much awaited GST from April 1, 2017 is doubtful, it is expected that the service tax rate may be increased from 15 per cent to 16 per cent or even slightly higher, adding to the discomfort of citizens who were otherwise anticipating relief and extra money in their pockets.”