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The budget came with a big bang, with a lot of expectations and hopes. A rise here and a fall there and in the end a mixed feeling with no clue what to do next? Are you thinking hard with what investment options to choose? Has the budget outcome narrowed down your investment and spending options especially with the ATM and other plastic money being brought under the service tax net? Has the Finance Minister (FM) been able to keep up with your expectations?

A lot of questions and possibly you are left with vague answers. But the tax system in India is not all for criticisms. The FM has managed to put an end to objections and has silenced the huge arguments on Fringe Benefit Tax (FBT). He has made the GDP growth soar at a notable 7% and the new target set is 10%. After all one cannot completely overlook the growth of our economy.

On the whole, the Budget 2006-07 has been an upbeat for the insurance industry. The FM has done away with the much sought after sub limit of Rs 10,000 under pension funds and hiked the upper limit under the same to Rs 1 lakh. What's more? It has also abolished FBT on group superannuation below a limit of Rs 1 lakh per year per employee. The limit of Rs 10,000 in pension funds under Section 80CCC has been removed and these investments are now under Sec 80C. These changes have undoubtedly been a blessing to the industry but a hike in the service tax means more outgo at your end.

Mr. Stuart Purdy, Managing Director of Aviva Life Insurance commented his views on the budget, "The removal of the cap of Rs 10,000 for investment towards pension under Section 80CCC is a favourable move to encourage long-term savings. Now customers have the flexibility to invest up to Rs 1 lakh in pension plans.” So far the limit was Rs 10,000 under Section 80 CCC.

However, the much-awaited FDI hike to 49% remained an untouched topic like the past two year budgets. The government should realize the intensity of the situation and as promised should consider it in the Comprehensive Bill that will be released in the parliament soon.

Since the introduction of FBT, the performance of superannuation business had received a setback. And the most feared consequence crept in. Many corporates discontinued with the benefit to their employees in the form of superannuation schemes. The effect had been so massive that some companies had even approached the tax authorities to seek permission so that they could liquidate the pension funds and give it to their employees without tax. These ways and means were approached to avoid the burden of FBT.

Its effect had become apparent with the shrinking figures in the business income of the insurance companies. The state insurer, LIC has a huge portfolio of Group Superannuation Scheme servicing around 6125 schemes with a total fund of 10,923 crores (as on 31.03.2005). During the year 2004-2005 a total superannuation premium of Rs.1893.93 was collected under New Business and Renewal.

After FBT came into effect on 1st April 2005, LIC’s both new business and renewals slowed down. As in November 2005, the insurance mammoth’s business collected a premium of Rs.393 crores only as against the corresponding figure of Rs.536 crores as on November 2004, recording a drop of 143 crore.

The reasons being, many employers had decided to rework the employees’ package where they would be paying the benefit along with the salary to their employees. Some of the employers had even asked for a premium holiday. In some extreme cases, the trustees had even surrendered the schemes.

According to the company, the impact of FBT was felt almost immediately after Budget 2005. The drop in premium income on superannuation schemes was felt by the insurers. The only dissimilarity was the difference in the numbers revealing the loss of business. The other private players to see a drop in the group business premium include Max New York Life, Birla Sun Life, SBI Life, etc.

However, no such issues will arise as the Finance Minister has done away with the FBT on superannuation scheme. He has definitely made a healthy simplification under FBT. Rationalising of this tax will restore the loss made by the insurance companies with superannuation schemes.