No surrender fee on Ulips after 4 yrs

Irda also takes mortality, morbidity charges out of overall 3% cap You can now surrender your unit-linked insurance plan (Ulip), purchased from a life insurer, after four years without having to pay any charge. This was announced by the Insurance Regulatory and Development Authority (Irda) today.The regulator has also made some changes to the overall ceiling on Ulip charges, which were fixed at 3per cent of the gross yield. As a relief to insurance companies, Irda has decided to keep mortality and morbidity out of the overall cap on Ulip charges. At present, there is no standard norm for surrender value, which is akin to exit load for mutual funds.With this latest Irda decision, insurers will have to pay the accumulated fund value, if a Ulip-holder surrenders his/her policy after four years. At present, there are around 70.2 million Ulip-holders, of which 25.2 million deal with private players.Insurers had demanded that mortality charges should be in line with the risk they were carrying and, hence, the decision should be left to them. They had argued that capping of charges would lead to changes in the distribution model and reduction in commission and acquisition charges.As per estimates by brokerage firm Edelweiss, for a typical back-loaded policy, the difference between gross and net yields to the policyholder ranges between 2.1 per cent and 4 per cent. This difference, according to Edelweiss, is likely to be higher for high charge front-loaded policies (4-4.5 per cent). According to the revised circular, mortality and morbidity charges will be excluded in the calculation of the net yield. The difference in the net and the gross yield has been capped at 300 basis points. The modifications were made, keeping in view the concerns expressed by the industry on Irda's July 22 circular capping the charges. "The exclusion of mortality and morbidity charges from the cap will ensure that there is no compromise on growth in sales of valuable life cover. In addition, life insurers will not have to resort to cross subsidisation across age groups to meet the charge cap. The decision clearly indicates that Irda wants life insurance to be viewed as a long-term protection product," said Max New York Life Insurance CEO and Managing Director Rajesh Sud. VVaidyanathan, MD and CEO, ICICI Prudential Life Insurance, said that excluding mortality and morbidity charges would promote the core concept of insurance. It has capped fund management charges at 135 basis points for all tenures. Earlier, there were two caps -one below 10 years and the other above 10 years. At present, this charge in equity varies between 125 basis points and 225 basis points, and in debt between 80 basis points and 100 basis points. "Now people in the older age bracket seeking higher assured sum can be insured... Having one cap on fund management charge will result in better administration of the fund as insurance companies will have to manage only one fund," said Kamlesh Goyal, Bajaj Allianz Life Insurance MD and CEO, and Country Manager of Allianz. Sud added that surrender charges and quantum and gradients would need to be prudently shaped in the first four years so that it was fair to all policyholders."This allows insurance companies to continue to provide adequate protection to the policyholders, which is the core objective of a life insurance policy. Moreover, it allows companies to offer older customers the benefits of life insurance without crossing the cap," said TR Ramachandran, Aviva India CEO and MD.

Govt looks to implement new I-T law from 2011

NEW DELHI: The government on Wednesday unveiled the draft of a brand new direct tax law, which will replace the four-decade Income-Tax Act, "... to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base", said finance minister Pranab Mukherjee.

The tax code makes radical changes in all areas of taxation: it lowers the incidence of tax on corporate and individual incomes but reintroduces wealth tax and capital gains tax, albeit at lower levels. It also proposes to bring a uniform pattern of taxation on all long-term savings in the form of EET—exempt at the stage of contribution, exempt during accumulation and taxed during withdrawal.

Releasing the draft direct taxes code, Mr Mukherjee said if a reasonable level of discussion happens on the code, a bill could be placed in the winter session of Parliament. The government is hoping to implement the new code from 2011.

Home minister P Chidambaram, who during his tenure as finance minister had initiated work on the Code and was intensely involved with its drafting, said this was a brand new Code written from scratch. Mr Chidambaram also said the underlying philosophy behind the Code is the philosophy of the government, which is wedded to a well-regulated free market system.

The code proposes to exempt income up to Rs 1,60,000 a year from tax. Income up to Rs 10 lakh will be taxed at 10%, 10-25 lakh at 20% and beyond Rs 25 lakh at 30%. Currently, there is no tax till Rs 1,60,000 of income in a year. However, there is a 10% tax on income between Rs 1,60,000 and Rs 3 lakh, 20% between Rs 3 lakh and Rs 5 lakh, and 30% beyond Rs 5 lakh.

But under the new tax law, an individual’s gross salary would also include perquisites such as value of rent-free accommodation, medical reimbursements and leave travel encashment. Taxpayers will also not be able to claim tax benefit on interest repayment on housing loans. However, the benefit would be available if the house is rented.

All savings schemes would also come under EET, implying that they would face tax at the time of withdrawal. However, tax exemption would be available to the Public Provident Fund and other pension fund schemes on withdrawals of amounts accumulated up to March 31, 2011.

The Code further proposes abolition of STT. Capital gains on shares and securities has been proposed to be taxed as income, added to other income after indexation with base year 2000. “The capital gains regime is proposed to be simplified by eliminating the distinction between long-term and short-term capital assets,” Vikas Vasal, executive director, KPMG.

Wealth tax provisions are proposed to be overhauled. Net wealth, which would include all wealth of an individual in excess of Rs 50 crore, will be chargeable to wealth tax at the rate of 0.25%. One of the key changes suggested by the Code includes giving supremacy to the Indian tax law in case of a dispute between provisions of a tax treaty and the Code, and introduction of a general anti-avoidance rule to combat tax avoidance.

This would help the tax authorities deal with cases such as Hutch-Vodafone, where if they infer that a tax treaty was being abused for tax benefits, those case be denied.

Besdies, a massive overhaul is suggested for corporate taxation besides slashing the corporate tax rate to 25%. The new rate would not have any surcharge or cess unlike present. Moreover, the current profit-linked tax incentives for businesses will be replaced with investment-linked incentives.

To put it simply, a company would be able to enjoy tax benefit only to the extent it invests. But, all the tax exemptions such as those available to Special Economic Zones would be given time to adjust to new regime. A minimum alternate tax on assets of companies is being proposed as it provides incentive for efficiency at the rate of 2%. It also proposes rationalisation of tax provisions for amalgamations and demerger so that tax remains neutral when businesses reorganise.

Dividend distributed by companies would be taxed at the rate of 15%.

In move that would have major impact on foreign companies or companies that have made investments in foreign countries, the code is proposing to treat a company as an Indian resident even if it is partly controlled in India. Presently, a company is treated an as Indian resident and taxed, only if full control of that company lies here. the measure is primarily aimed at preventing escape of any income from taxation.

“The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base,” Mr Mukherjee said.

Source:ET