Govt mulls sops to end gold rush May Give More Tax Incentives For Investment In Insurance To Wean Investors Away From Yellow Metal To Other Financial Instruments

New Delhi: Buying life insurance policies may get more attractive with the government looking at further tax sops for investment in risk covers as part of its plan to wean investors away from gold to financial instruments, including mutual funds. 

    There have been at least two statements from the government — first from PM Manmohan Singh and then by finance minister P Chidambaram on Monday — laying down the direction for a shift of investment towards insurance and mutual fund schemes. While insurance policies will provide the government with long-term resources as bulk of the funds are invested in government securities, mutual funds will generate resources for stock markets as well as in the debt instruments. 
    Sebi is expected to announce measures, such as an increase in expense ratio for mutual funds, which is currently capped at 2.5%, and other steps that would encourage fund houses to go beyond the top 10 cities in the country. The markets regulator has also been pitching for offering tax sops to individuals with income up to Rs 10 lakh, something that was announced for those investing in stocks for the first time. 
    For individuals, insurance provides an opportunity to cover potential risk — something that few Indians possess today. India has among the lowest insurance penetration, which further declined last year. As a proportion of GDP, insurance penetration in 2010-11 was estimated at 4.4% compared to 4.6% in the previous year. 
    Currently, investment in life insurance policies is part of the Rs 1 lakh exemption limit for individuals. In addition, they get tax breaks onhealth insurance premium of up to Rs 15,000 a year. But going forward, the Direct Taxes Code will curtail tax sops for investment in life insurance andhealth covers to Rs 50,000 annually. "This is not sufficient. The Life Insurance Council (an industry body headed by an IRDA member) has made a strong pitch for Rs 1 lakh exemption for these segments," Aviva Life CEO T R Ramachandran said. 
    Government officials too reckon that tax sops would be beneficial to push insurance and are going to seek changes in the current regulation when the issues is discussed with Chidambaram at length. 
    The other area where the insurance industry is seeking sops is for the pensions business. "Nearly Rs 30,000 crore in premium is gone (for the insurance industry). This is a completely virgin area and people can plan for their retirement," said S B Mathur, secretary general of the Life Insurance Council. He suggested that given the reach of life insurance companies, these could reach the remote areas of the country and meet the needs of rural areas as well. 
LOOKING FOR NEW RISK COVERS tPM & FM have hinted at moving investments to insurance, MFs 
tInsurance seen as long-term resource for govt as most investments go into G-Secs; MFs expected to prop up equities, debt instruments 
tA tax-saving push for insurance will raise number of individuals with risk covers from the current dismally low level tSebi may unveil steps to encourage fund houses to expand beyond the country's top 10 cities