In the Budget for 2020, the Finance Minister has provided 2 options for tax payers. The Minister has provided the option of continuing with the regime of tax exemptions that tax payers were used to all these years, and pay a higher rate of income tax. If a tax payer opts out of the option of claiming various tax exemptions under sections 80 C, 80 D, 80 TTD, and so on, the tax payer pays a lower tax rate. This option is to be exercised by the tax payer. Each tax payer has to carefully choose between the two options, so that there is no financial loss to the tax payer.

The rough thumb rule stated in the media

The media has been offering many assessments and analysis of what this could mean to different tax payers and the tax payers who will benefit from giving up on the tax exemptions. While there are many issues, in general there seems to be a consensus that those earning Rs. 10 to 12 lakhs per annum will benefit by giving up on the tax exemptions. Each individual tax payer will have to make this calculation independently and not depend on newspaper articles, which are more generic in nature.

The Case of a Life Insurance Policy Holder has a Special Aspect

But there is one aspect that should specifically interest life insurance policy holders. Life insurance is a long term contract. The policy holder commits to pay premium for a period of 15 to 25 years. Many policy holders have calculated that they will get Section 80 C benefits on the premium they pay every year for all the future years of the policy term. For life insurance policy holders giving up the exemption under Section 80 C, may not be a good idea.

It may be noted that the benefit under Section 10 (10 D) however continues. That is to say, the maturity value of a life insurance policy is tax free, even in the new regime.

Educate Your Customers and Develop Greater Trust

But coming back to Section 80 C, it will be a wise decision on the part of agents to visit their customers and bring this to the notice of their customers. That opting out of exemptions under the new Income Tax Laws may result in financial loss to customers who have committed to long term contracts such as life insurance and PPF. If the customers opt out, they lose the Section 80 C benefits for the rest of the policy term, which can be a big loss.

Also we should alert customers that there may be agents of mutual funds or of other investments, who may advice that the life insurance policy should be surrendered since Section 80 C benefits are not applicable any more. Customers should be given the confidence of continuing with their considered long term investment decisions made in the past. They should be made confident of their past decisions.

Perhaps it is time to conduct a customer awareness campaign on this point. Prepare a list of all your customers and visit 10 of them every day. You will reap the rewards in this financial year. Happy Selling!

Sell Risks not Returns