Monday, November 29, 1999

Ulips investment products, to be taxed: Finmin

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New Delhi, June 17 (PTI) The Finance Ministry has said the unit-linked insurance products (Ulips) are investment products and are therefore likely to be taxed after enactment of the Direct Taxes Code (DTC). "Ulips are basically investment products and needed to be taxed. The final view, however, will be taken at the time of the formulation of the code", the finance ministry sources said here today. At present, no tax is levied on the returns on Ulips, an equity-linked insurance instrument, the regulation of which has become a bone of contention between the insurance regulator Irda and market watchdog Sebi. Ulips are hybrid investment-cum-insurance products and account for over 50 per cent of the total insurance business in the country. When contacted, Life Insurance Council secretary general SB Mathur said, "we have maintained that Ulips are not pure investment products. But calling them pure investment product is not correct. We will approach the revenue department in due course." As per the revised DTC, which will replace the 50-year-old Income Tax Act, only six specified instruments will qualify for the EEE (exempt-exempt-exempt) taxation. Under the EEE mode, tax exemption is provided at all the levels of the instrument-- at the time of investment, at accrual and at the time of withdrawal. The DTC is expected to be operational from next April. The six instruments which will qualify for exemption are government provident fund, public provident fund, recognised provident fund, pension funds regulated by Pension Fund Regulatory and Development Authority (PFRDA), pure life insurance products and annuity scheme. As Ulips are investment products, the Finance Ministry official said, it could not be classified as pure life insurance product. The insurance watchdog Irda is locked in a turf war with Sebi over regulation of Ulips. The problem came to the fore after Irda advised 14 life insurance companies to ignore the April 9 Sebi''s order banning Ulip schemes. The row prompted the Finance Ministry to intervene in the matter and mediate an agreement under which both the regulators agreed to seek a legally binding order on Ulip jurisdiction. Following this, Sebi moved the Supreme Court to transfer all cases pertaining to the Ulip issue to the apex court following which notices were sent to the Centre, Irda and 14 insurers. The apex court will hear the matter on July 8. PTI BSP CS.

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