People in India have misunderstood life insurance as an investment. This is why policies like endowment plans and money back plans are widely sold. Life insurance companies also take advantage of this misconception and nurture sales fattening. Will stricter tax regulations help curb this trend?

Unlike long-term investment schemes like PPF, EPF and NPS, life insurance policies, especially those with investment, do not get full tax relief. Conditions for paying tax on income at the end of the investment term of the policies have been tightened.

194 DA in the Income Tax Act has been amended. As per the amendment introduced in the last financial year, five per cent TDS will be applicable if the net income earned at the end of the life insurance policy is taxable. Net income is calculated by deducting the premium paid up to that point from the amount received from the insurance company. The bonus will also be treated as net income.

At the same time, TDS is not applicable if the total amount received from the insurance company is less than Rs.1 lakh. TDS is not applicable if the Minimum Sum Assured is transferred to the nominee after the death of the policy holder. Therefore, TDS is not applicable for claims on term policies.

If the annual premium is more than 10% of the sum assured, income tax is applicable. For example, if the annual premium of a policy with an insurance premium of Rs.2 lakh is above Rs.20,000, income will be taxable.

In case of life insurance policies issued before April 1, 2012, tax deduction will not be available if the sum insured is less than five times the premium. That is, the policyholder is liable to pay the tax as per his tax slab, including the income received at the end of the policy term.

As per the rules enacted in 2012-13, not all life insurance policies are tax deductible under Section 80 (c) of the Income Tax Act. No tax deduction is available if the annual premium is more than 10% of the sum assured (Sum Assured). Income earned on withdrawal of investment from such policies is taxable. At the time of withdrawal, the policyholder has to pay the amount after 5% TDS directly.

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A total of Rs.8,crore was withdrawn through COVID window. Shortly after the nationwide lockdown at the end of March, Finance Minister Nirmala Sitharaman announced the opening of a special window to partially withdraw investments from the EPF.

For those who are facing financial difficulties due to the special circumstances created by COVID, the window provides for the withdrawal of three months’ basic salary along with dearness allowance or 75% of the balance in the EPF, whichever is less. Thirty lakh subscribers have used this facility so far.

Fifty lakh subscriber withdrew Rs.22,crore for medical purposes.This is a higher amount than was withdrawn during the same period last year. It is expected that the number of people who will opt for EPF withdrawals in the coming days will touch one crore.

Nirmala Sitharaman had earlier announced that the EPF deduction would be reduced from 12 per cent to 10 per cent for three months. The stimulus package also included this reduction in the amount that the people remit into EPF.

In other words, the Rs 20 lakh crore package announced by the government will include a reduction in the amount people have to invest in the EPF. The government has taken the bizarre step of including in the package even a reduction in their compulsory investment without providing any direct financial relief to the common people who are the victims of lockdown and recession.

The reason for the massive withdrawal from the EPF is the low income and job losses of workers in the micro and small enterprises sector.

The loss of income for the people has arrested consumption, the driving force of the economy. Micro, small and medium enterprises employ about 11 crore people. Earlier, it was reported that one-third of the enterprises in the region were shut down. This will result in the loss of billions of jobs, both direct and indirect.

Last year saw the country was witness to the highest unemployment rate in 45 years. Corona came at a time of crisis in the job market and the small business community. The lock-down has exacerbated the underlying financial problems.

Even if we tide over the COVID-19 crisis, a good percentage of closed enterprises are unlikely to reopen. Therefore, the extent of job losses is very high. Additionally, as inflation rises, the number of people who are unable to meet the cost of living will increase.

With rising inflation, the cost of living is also rising. The Central Government needs to take immediate action to address at least a small number of such fundamental issues. If another package is to be announced, it should at least include schemes that provide direct financial support to the people. Those who lead the government would be considered inhumane if they are not willing to do so.

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