DTC TO HAVE SIGNIFICANT IMPACT ON INSURANCE COs.
THE insurance sector is going through a challenging phase with regulatory changes significantly impacting the business model of life insurance firms, in particular. On the direct taxes front, from April 1, 2012 when Direct Taxes Code (DTC) will be implemented the sector may also have to deal with a considerably altered taxation model, which may result in additional compliance and potentially leave room for uncertainty as far as the taxation of insurance companies and policyholders are concerned.
The life insurance sector has always experienced an advantageous position when compared to other taxpayers. To date, they were subject to a concessional tax rate of 12.5% (plus surcharge and education cess) on the surplus disclosed by the actuarial valuation as per the Insurance Act, 1938, less the opening surplus disclosed by that valuation. The DTC proposes to do away with this taxation scheme and tax the profits in shareholders account at the normal corporate tax rate of 30% leaving policyholders funds to be taxed in the hands of shareholders or subject to a distribution tax of 5%.
It provides that proceeds on maturity of life insurance policies (in case other than the death of the policyholder) will be taxable in the policyholders hands, except where the premium paid does not exceed 5% of the sum assured. Life insurers would need to withhold tax at specified rates from these proceeds. Approved equity-oriented life insurance schemes are subject to a distribution tax of 5%, which the life insurers will have to pay with the maturity proceeds being tax-exempt in the policyholders hands.
Some other tax issues for life insurers could be treatment of transfer of funds from shareholders accounts to policyholders accounts and vice versa, applicability of minimum alternative tax (MAT) proposed at 20% of book profits, computation of book profits, if at all MAT is indeed applicable, and a potential disallowance of expenses where tax has not been withheld.
For general insurers, the taxation scheme remains largely the same. The profits as per the profit and loss account (P&L a/c), submitted to the insurance regulator Irda, continue to be the basis of computing the taxable income.
However, an important departure from the current position is that a provision for loss in diminution of the value of investments held by them should arguably be allowable and unrealised gains on revaluation, if any, on revaluation could potentially be taxable, if routed through P&L a/c.
Compliance with withholding tax provisions is another challenge that the sector may find increased. In addition to the withholding tax on maturity proceeds of life policies mentioned above, Indian insurers, and even foreign insurers, may be required to withhold tax from payments that they would make to non-resident re-insurers where the risk resides in India.
Non-resident re-insurers would be subject to income-tax on payments for reinsurance received by them for covering any risk in India, as the said payment would be income deemed to accrue or arise in India and be subject to income-tax at 20%. Ironically, the rate of withholding tax for such payments has not been specifically prescribed and so, the rate of withholding tax from any other income of a non-resident (a residuary rate) should apply. This seems to be an unintended consequence. Lastly, insurance firms having eligible assets in excess of `1crore would also be liable to pay wealth-tax under the DTC.
From a policyholders point of view, the premium that they would pay on life insurance policies would be eligible for a deduction from their gross total income only if the same does not exceed 5% of the sum assured. The limit for this deduction would be `50,000 in addition to the deduction of `100,000 available for contribution to approved funds.
Though there is an overall increase in the deduction limit, it stands reduced for life insurance premium. There are also no proposals to grandfather the existing policies either from the change in the deduction for the premium payment or the exemption of the maturity proceeds (in excess of the premia actually paid) from income tax. Comprehensive and not constrictive was the hope of the insurance industry from the DTC. The sector might just feel that the DTC proposals would further test its resilience in the time of regulatory turmoil.
BY CA BHUPENDRA SHAH
INCOME TAX RETURN FILING DUE DATE EXTENDED UPTO 04 AUGUST 2010
The the last date to file your income tax return for A.Y. 2010-11 have been extended up-to 4th August 2010. Previously it was 31st July 2010. All returns paper returns & e – returns filled on or before 04th August 2010 will be considered as filed within due date.
The decision was taken in view of some technical snags in the e-filing computer system, and inclement weather at various locations, due to which taxpayers have reported difficulties in filing or uploading income tax returns. The decision was taken by CBDT.
GO GREEN: FILE YOUR RETURNS ONLINE
Every organization is doing something or other to save our planet. As an individual we can also help in retaining the green carpet on earth by filing your return online.
Facts
• On an average an individual tax return prepared on the paper requires around 20 sheets of paper for photocopies & printouts.
• An individual typically spends 10-20 productive hours to get his or her tax return to be filed.
• Printouts & photocopies typically run into 10-15 pages per employee.
Benefits of E-Return
• All electronically filed returns are processed on priority basis at all the income tax department’s centralized processing center at Bangalore so that the refunds can be issued faster.
• No need to stand in a queue at income tax office.
• E filing process saves 10000 productive man hours.
• More over it saves Lakhs of rims of paper thus saving million trees.
• E return requires just 10-20 minutes to e-file.
How to file e-return?
The following steps will lead you to file your return electronically.
• Log on to www.incometaxindiaefiling.gov.in
• Click on “Download” menu.
• Select appropriate type of return.
• Download the Return Preparation Software for selected return form.
• Fill the Excel Utility return offline and generate XML file.
• New users need to create login account, for that click on “New User”.
• After you have successfully created your account, an activation link will be emailed to the user.
• Log on with your id/password.
• Click on “Submit Return” & select “”.
• Click on relevant form.
• Browse to select XML file & click on “Upload” button.
• On successful upload acknowledgment delayed would be displayed. Click on “Print to generate printout of acknowledgment/ITR-V.
• You can also digitally sign your return. In that case you can just have to keep the Acknowledgment for your record.
• In case you have not digitally signed the return. The ITR-V/ Acknowledgment cum verification form needs to be signed & mailed to Post Bag No.1, Electronic City Post Office, Bengaluru, Karnataka-560100, by ordinary post or speedpost only within 120 days from the date of transmitting the data electronically.
• ITR-V sent by Registered post or courier will not be accepted.
• You can also check your e-filing processing status by log-in with your user id/password & click on My Account.
This completes the E Return filing process. So, why to wait for 31st July. File your return online in just a few minutes & save environment.
INCOME TAX: A LAYMANS OVERVIEW
In today’s world nothing is free. We have to pay taxes even for our basic needs in form of vat, service tax etc. Similarly a tax is levied on income of individual or business is known as Income Tax. The incidence of income tax can be progressive, proportional or regressive. The tax levied on individual is known as personal or individual income tax. Whereas when it is levied on the income of companies is known as Corporate tax or profit tax.
Indian overview: In India income tax is governed by the Indian Income tax Act 1961. The government of India imposes an income tax on individuals, Hindu undivided Family(HUF), Companies, firms, Co-operative Societies & trusts.
Every person whose total income exceeds the maximum amount which is not chargeable to income tax shall be liable to pay tax at the rates prescribed under the finance Act for the relevant assessment year.
An individual has to pay tax on his total income earned during previous year for every assessment year. The chargeability of tax not only depends on the nature of income (viz. revenue or capital) but also on residual status of an individual.
Objective: The objective of Income Tax Act is to tax only income and items which are construed as income chargeable unless specifically exempt.
What is income?
Sec.2 (24) of Indian Income Tax Act 1961 provides definition of income in an illustrative manner.
Tax Rates in India
India follows the progressive tax system for individual income tax. The effective tax rates with effect from April 1, 2010 are as follows.
Note: Surcharge has been abolished for personal income tax from the financial year 2009-10.
All the taxes in India are subject to an education cess of 2% & 1% of Higher secondary Education cess.
Due Dates
