Budget 2024: As the interim budget date comes closer, here is what insurance industry experts expect from finance minister Nirmala Sitharaman

While a few insurance experts want a reduction of 18 per cent GST in insurance products; a few of them want a separate section for insurance premiums other than Section 80C of the Income Tax Act. Some advocate that the current RS 50,000 tax exemption for NPS under Section 80CCD(1B) should be extended to pension and annuity plans, one recommends the removal of the 5 per cent GST on hospital room rent exceeding Rs 5,000.

As per IRDAI, the non-life insurance penetration in India for FY23 stood at one per cent, for life insurance, it was three per and for industry, it was four per cent. Photo: IRDAI/Representational

Last week, a report by Swiss Re Institute said that the insurance industry in India was projected to grow the fastest among the G20 countries with an average annual rise of 7.1 per cent in premiums in real times during 2024-28.

The institute also said that the growth of the Indian insurance industry was expected to be much higher than the global average of 2.4 per cent during the same duration.

Even with such high projected growth, the penetration of insurance in India is quite low. According to the Insurance Regulatory and Development Authority of India (IRDAI), the non-life insurance penetration in India for FY23 stood at one per cent, for life insurance, it was three per and for industry, it was four per cent.

TRENDING NOW

As the date of the interim budget comes closer, insurance industry experts have high expectations of Finance Minister Nirmala Sitharaman, who is set to present the budget on February 1.

While a few of them want a reduction of 18 per cent GST in insurance products; a few of them want a separate section for insurance premiums other than Section 80C of the Income Tax Act.

While some advocate that the current RS 50,000 tax exemption for NPS under Section 80CCD(1B) should be extended to pension and annuity plans, one recommend the removal of the 5 per cent GST on hospital room rent exceeding Rs 5,000.

In this write-up, we go through the expectations of insurance industry experts from the government.

Santosh Agarwal, Chief Business Officer – Life Insurance, Policybazaar.com

The impending Budget 2024, and the insurance sector eagerly supports the prospect of an increased tax benefits limit to boost insurance penetration in India.

Tax relief has historically catalysed insurance adoption, aligning with IRDAI's vision of insuring India by 2047.

Key expectations from this year's Budget include a reconsideration of taxes on the entire insurance category to achieve a fair balance.

Proposals include establishing a dedicated exemption category for term insurance, addressing the current exhaustion of the Section 80C deduction limit of Rs 1,50,000 due to other allowable expenses.

Additionally, a reevaluation of the 18% GST rate aims to ensure pricing benefits reach end consumers, fostering increased life insurance investments.

Recognising the tendency to defer retirement planning, equal tax treatment for pension products is emphasised, aligning them with the National Pension Scheme (NPS).

Proposals advocate a tax-free status for annuity income derived from pension products to encourage wider adoption and enhance parity with other investment avenues.

In the post-pandemic era, the significance of health insurance is underscored, prompting calls for innovative tax structuring.

Suggestions include increasing the maximum deduction limit for self, spouse, and dependent children to Rs 50,000, and for senior citizen parents to Rs 1 lakh.

Additionally, extending tax exemptions to Health Savings Accounts is proposed to empower individuals in planning for escalating healthcare expenses.

Anand Roy, MD and CEO of Star Health and Allied Insurance

Health insurance has become a basic necessity today, whether one is self-employed or a salaried person.

It is a critical component in mitigating rising healthcare costs while accessing quality health care treatments for individuals and families.

Senior citizens constitute approximately 9% of our population, and with a higher life expectancy, access to health insurance protection is crucial.

However, penetration of health insurance continues to be very low in our country.

More than 50% of healthcare expenses are met out of pocket.

Given the importance of health insurance in safeguarding families and senior citizens against increasing hospitalisation costs and alleviating financial strains, in light of these circumstances, the insurance industry would urge the government to consider a reduction in the existing 18% GST rate on retail health insurance products.

This reduction in the GST rate would not only enhance the affordability of health insurance for the general public but also contribute to increasing insurance penetration and accessibility, particularly in tier-II, tier-III cities, and rural markets.

Rakesh Goyal, Managing Director, Probus Insurance broker

The insurance industry advocates for a reduction in the Goods and Services Tax (GST) on insurance products, a move that would significantly benefit consumers across the nation.

The current 18 per cent GST rate is deemed excessively high, and anticipation exists for a revision.

Moreover, there's a call for greater flexibility for deductions from health insurance for personal use, family needs, and senior care.

Additionally, there is a business plea for distinct deductions within Section 80C of the Income Tax Act, particularly for insurance, a measure that holds promising potential for long-term business growth.

These proposed adjustments collectively aim to create a more favourable environment for both insurers and policyholders."

Satishwar B, MD & CEO, Aegon Life Insurance

Life Insurance 2024 – Exploring New Frontiers

2023 was not just another year in the archives of the life insurance industry; it was a year of groundbreaking achievements.

The industry, leveraging the power of artificial intelligence (AI) and other advanced technologies, transformed insurance from a complex necessity into a simple, accessible solution tailored to the diverse needs of the Indian populace.

Partly triggered by the COVID-19 pandemic, the Indian population too has become more aware of the need and urgency of buying a life insurance policy.

Life insurance companies have thus been growing steadily and contributing to the Indian economy. Tech innovations fuelled this growth and will sustain it in the years to come.

Budget Wishlist

Our journey towards 'Insurance for All by 2047' is marked by strategic steps, and certain recommendations for the upcoming budget could pave the way for growth and accessibility in the life insurance sector:

1. No taxation for annuity plans to benefit both retirees and the industry:

Many Indians don't save enough for retirement, and the gap between needed and available retirement funds is expected to reach $85 trillion by 2050.

To help close this gap, consider these steps:

Investing in pension and annuity products is crucial for income after retirement.

Making taxes simpler or removing them for these products will encourage more people to invest in these important financial protections.

Pension policies, like the NPS, provide a steady income in retirement.

It's important to lessen the tax load for people receiving pensions from the National Pension System (NPS), as the retirement fund gap is expected to increase a lot.

The current Rs 50,000 tax exemption for NPS under Section 80CCD(1B) should also apply to pension and annuity plans to encourage more people to use them.

2. Improving tax benefits to increase insurance coverage:

India faces a severe issue with inadequate insurance.

When a family's primary earner passes away, the money left for the survivors to live and settle debts is usually less than nine percent of what's actually needed.

- Separating savings for life and health:

Changing tax Sections 80C and 80D to provide separate tax breaks for the life-threatening risk part of life and health insurance payments, as well as for fixed-term insurance plans, could help close the gap in death risk coverage and enhance social security.

- Complete deduction for life insurance premiums:

Permitting individuals to deduct the entire amount paid for life insurance premiums from their taxable income, as stated in Section 56, without any decrease due to claims made under other sections such as 80C, will encourage more people to buy insurance.

This means they get the full tax benefit for their insurance premiums, making insurance more financially appealing.

3. GST reforms for wider reach:

Lowering the Goods and Services Tax (GST) on term life insurance and applying a 'Zero rating' –which means setting the tax rate to 0%— for certain essential policies like the Pradhanmantri Jeevan Jyoti Bima Yojana, smaller insurance policies covering up to Rs 2 lakh, and annuity products for National Pension Scheme subscribers.

By effectively removing the tax without sacrificing tax benefits for businesses, this policy aims to enhance financial security for more citizens.

A Collaborative Future Ahead

As we progress, the collective efforts of the life insurance industry, including Aegon Life, are crucial in shaping a more secure financial future for individuals across the nation.

With data enablement as the driving force behind this insurtech revolution, we can expect many more innovations soon.

Databases such as Aadhaar, Income Tax Portal, and Account Aggregator Network are already helping insurers with digital underwriting. The…

Shanai Ghosh, MD & CEO, Zuno General Insurance

The upcoming Budget 2024 carries significant importance, especially considering the IRDAI's vision of insurance for all by 2047.

Implementing policy measures will provide a boost to the industry's endeavours in this direction.

A relook at the 80D section, in terms of the raising the limit and revision in the CBDT’s family definition should be considered.

A forward-thinking step towards inclusivity would be extending this benefit to domestic partners, with a particular focus on supporting the LGBTQIA+ community.

We would also recommend the removal of the 5% GST on room rent exceeding INR 5,000, particularly in metropolitan areas where prevailing prices in major private hospitals are …

Mr. Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance

We have been asking the government to introduce a separate tax deduction limit for life insurance for the last 5 to 6 years but nothing has happened.

The reason is that the current Section 80C is too cluttered, where a person can claim deductions up to Rs 1.5 lakh for PPF, Sukanya Samriddhi Scheme, ELSS, tax saving fixed deposits, school fees, the principal sum of a home loan, including life insurance.

The other demands are to make pensions tax-free in the hands of annuitants.

The current Rs 50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to the pension and annuity plans of insurance companies to provide a more level playing field.

Susheel Tejuja - Founder and Managing Director, PolicyBoss.com

"In expectations, state the undermentioned as is until end:

1. Look forward to seeing greater tax relief in terms of exemption limits for high-value life insurance policies

2. Look forward to greater impetus on Bima Vistaar and all channels/intermediaries be allowed to solicit this, ensuring maximum industry participation and greater penetration overall

3. ⁠Look forward to increase in tax limits u/s 80D, as Rs 25,000 premium ceiling has not changed with changing times and given the rate of medical inflation and growing cost of healthcare, increasing this limit will boost both growth and inclusion for all.

As we navigate the intersection of finance and technology, our expectations extend to incentives for insuretechs, ensuring the continued growth and resilience of digital solutions within the insurance industry."

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