Date:16/02/2006 URL: http://www.thehindubusinessline.com/2006/02/16/stories/2006021602790100.htm

Back Profit from sale of investments may soon be tax-free for general insurers

Sarbajeet K. Sen
K.R. Srivats

General insurance companies are keen to benefit from the amendments in the Budget of 2004-05 which provided that long-term capital gains from sale of equity shares (where securities transaction tax has been charged) would be tax-exempt from assessment year 2005-06.

New Delhi , Feb. 15

THE Government is likely to incorporate a specific provision in the income-tax law to exempt from tax the profit earned by general insurance companies from sale of investments. The amendment may be proposed in the forthcoming Union Budget.

Currently, under the I-T law, general insurance companies are assessed under a dedicated set of provisions that they feel have put them at a disadvantage vis-à-vis other assessees in respect of tax treatment of profits from sale of investments.

The insurers have approached the Finance Ministry to bring about a level-playing field by clearly spelling out that such profits would be tax-exempt.

Despite other companies enjoying the benefit, general insurers apprehend that they do not benefit from the exemption since they are governed under separate provisions.

From the financial year 2001-02 (when the Insurance Regulation and Development Authority (IRDA) regulations became mandatory), the profit on sale of investments are taxed at the hands of the general insurers by the tax authorities on the plea that there is no specific provision exempting such profits from tax.

The IRDA had required general insurance companies to route their profits on sale of investments through the profit and loss (P&L) accounts and revenue accounts. Prior to the IRDA requirement, the general insurance companies were adjusting the gains against the reserves.

Confirming that the insurance industry had raised the issue with the Finance Ministry, the Chairman and Managing Director, Oriental Insurance Co, Mr M. Ramadoss, said there has been a collective demand that profit from sale of investments should be tax exempt for non-life insurers too.

"All companies other than insurance companies get benefit on exemption from long-term capital gains. This is because of the peculiar nature of taxation for insurance companies under the present laws. We have said that profit made by us from sale of investment should also be tax-free," Mr Ramadoss said.

He said while companies have individually taken up the issue, the matter has also been raised through the collective forum such as the General Insurance Public Sector Association. Mr Ramadoss said the IRDA has also supported the cause of the non-life insurers.