Insurance regulator IRDA is in talks with government to make annuity plans more tax efficient. Annuity plans need to be made more tax-efficient to promote long-term savings and attract more investors.
According to the existing Income tax law, an Individual can claim a tax deduction of up to Rs.1 Lakh on the premium (or the principal contribution) paid for the annuity plan. But the payments received by the Individual – annuitant in technical parlance – are fully taxed.
The tax rate depends on the slab in which the tax payer falls, with the maximum marginal rate at 30%. The insurance regulator has asked the finance minister to consider bifurcating the principal and the interest component in payments made to annuitants.
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