If the Direct tax Code (DTC) goes through, insurance policyholders would be in for bonanza, as the DTC tabled in the parliament has proposed to exempt policyholders’ funds from the 12.5% tax charged on the income earned from the investment corpus generated through premium collections.

 

But the DTC has proposed to levy a 30% tax on shareholders’ funds. Hence now, the income of the insurance companies will be taxed at the corporate rate, while the earnings of the policyholders’ funds (accumulated on behalf of investors) will not be taxed.

 

We believe that if the DTC tabled in the parliament goes through, it will certainly act as sweetener for policyholders’ as they would gain through the increased bonus rates. Also in our opinion country’s largest life insurer – Life Insurance Corporation of India (LIC) would stand to benefit, since it does not have any shareholders. In their (LIC) case the surplus (net of taxes), is distributed between policyholders and government in the ratio of 95:5; so while the government will lose tax, it will gain in dividends.

Add Comments

Comments
adams@leavitt.com Jan 19, 2012 That's the prefect insight in a thread like this.

 1