The Life Insurance Co­uncil has asked the Insurance Regulatory and Development Authority (Irda) and the ministry of finance not to include a proposal in the new direct tax code regarding taxing insurance money on maturity of the policy.

The industry body of life insurers, Life Insurance Council, has said the present provisions in the new direct tax code is not beneficial for insurance buyers and the life insurance industry.

“We have written to the regulator and the government that taxation on withdrawal is a western concept and it should not be implemented in India. Saving habits of Indians is different. We have also asked government to bring life insurance products at par with Employee Provident Fund (EPFO), as EPFO withdrawals pertaining to accumulated balance as on March 31, 2011 are not taxable,” S B Mathur, secretary general, Life Insurance Council told Financial Chronicle.

Mathur said they are waiting for clarity from the government on these issues.

Insurance industry th­rough life insurance co­uncil has asked the government to shift to the new tax regime under the direct tax code only for those policies sold after the proposed code came into effect from April 2011.

The new direct taxes code has proposed to bring all saving schemes in exempt-exempt-tax (EET) regime, which means withdrawals made by customers will be taxable while investment and accumulation will be exempt from taxation.

“There are issues around death and health benefits getting taxed and non availability of capital gains based tax treatment. Also, the absence of grandfathering provision for policies purchased prior to the code implementation ne­eds resolution,” said a senior official of a private life insurance company.

Grandfathering would ensure that the new tax provisions would not be made applicable with retrospective effect with investments made before the relevant date not attracting the new tax provisions.

New direct tax code was unveiled on August 11, 2009 for public discussion by various stakeholders.