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March 1, 2016
Finance Minister Arun Jaitley yesterday announced several measures in his 2016-17 Budget Speech concerning insurance and pensions, including a proposal for a public listing of the country’s four government-owned general insurance companies.
He also proposed to significantly relax the foreign investment policy in several sectors, including insurance and pension, to attract more overseas investments. He announced too a new health insurance scheme aimed at families below the poverty line. Mr Jaitley said that the general insurance companies owned by government will be listed on the stock exchange. They are: New India Assurance, National Insurance, Oriental Insurance and United India Insurance. However, he did not stipulate a timeline for the initial public offers of the insurers.
Automatic approval route
To attract foreign investors, Mr Jaitley also said that foreign direct investments of up to 49% in companies in the insurance and pension sectors will be allowed under the automatic approval route. This means that the overseas investors will not have to approach the Foreign Investment Promotion Board (FIPB) for approval for their stakes. However, the existing requirements for local insurance companies to be under Indian management and control will have to be verified by the respective regulators, IRDAI and the Pension Fund Regulatory and Development Authority. Last year, the government increased the foreign investment cap in the insurance and pension sectors to 49% from 26%. Currently, foreign direct investments up to 26% are permitted through the automatic approval route. For investments of more than 26% to 49%, the approval of FIPB is required at present.
New health insurance scheme for the poor
Mr Jaitley said that the new health insurance scheme will offer a cover of up to INR100,000 (US$1,466) per family, and for senior citizens aged at least 60, a top-up of INR30,000 will be available additionally. This is expected to cover one third of India’s population against hospitalisation expenditure. At present, India only has the Rashtriya Swasthya Bima Yojana which was envisaged to provide health insurance coverage to poor families. Its beneficiaries are entitled to hospitalisation coverage of up to INR30,000 for most diseases.
Tax incentives for pension schemes
Mr Jaitley proposed uniform tax treatment for recognised provident funds, the national pension system and superannuation funds. He said: “I propose to make withdrawals up to 40% of the corpus at the time of retirement tax-exempt in the case of the National Pension Scheme. In the case of superannuation funds and recognised provident funds, including EPF (Employees’ Provident Fund), the same norm of 40% of corpus to be tax-free will apply in respect of corpus created out of contributions made after 1 April 2016.” In addition, he said that the annuity fund which goes to the legal heir after the death of the pensioner will not be taxable in all three cases. He added: “Also, we are proposing a monetary limit for contributions of employers in recognised Provident and Superannuation Fund of INR150,000 per annum for tax benefit. I propose to exempt from service tax the annuity services provided by the National Pension System (NPS) and services provided by EPFO (Employees’ Provident Fund Organisation) to employees. I also propose to reduce the service tax on single-premium annuity (insurance) policies from 3.5% to 1.4% of the premium paid in certain cases.”