Insurance Council opposes EET system proposed in direct code

Constituted under the Insurance Act,the Council is a forum that connects various stakeholders in the insurance sector–the government,regulator and the Public–and includes all life insurers.

The code proposes an exempt,exempt,tax regime (EET) against the present exempt,exempt,exempt system(EEET). EET means that while contribution to insurance,return on that fund will be exempted from tax,withdrawal will be taxed.

The current EEE mode exempts the insured at all the three phases.

“Either the present system (of EEE) should continue or we should be given the benefit of indexation,” Mathur said.

Indexation means that the withdrawn value of money be reduced to real value by factoring in the price rise of each year. If that is done,the tax would be reduced.

Mathur said insurance is a long-term contract. “If EET is applied,then we should be given the benefit of indexation. Real value of money goes down. Basically,the code proposes to tax long-term savings on nominal value.”

The code says withdrawals should be included in the income of the assessed during the relevant year and taxed accordingly.

The EET mode of taxation,the code says,would encourage long-term savings by the people.

A bill on tax code is yet to be prepared. Finance Minister Pranab Mukherjee has assured that the bill would be tabled in parliament after addressing all concerns.