Insurance Sector's Hopes For Secure Financial Future, Advocacy For Tax Incentives
On the cusp of Budget 2024, the insurance sector in India eagerly anticipates pivotal changes that can potentially reshape the industry’s trajectory. Indisputably, India’s insurance penetration ranks low on the global scale and equally undeniable is the crucial role played by tax benefits in incentivising insurance purchase. Recognizing this impact, the sector is advocating for adjustments that align with the broader goal of insuring India by 2047. While the collective realisation for financial security is much stronger in the post-pandemic world, tax incentives might just be the nudge needed at this juncture to match up the protection index to the global average.
Here’s outlining how restructuring tax benefits can help with insurance adoption -
Rethinking tax deductions under 80C
One of the foremost expectations from the insurance sector is a reassessment of tax structures under Section 80C. The current deduction limit has been Rs 1,50,000 for quite a few years now and therefore, needs to be revisited and expanded. The limit gets consumed due to several other allowable declarations like PPF and loans, leaving little room to accommodate all crucial financial decisions. To address this, there’s a need to introduce an exclusive exemption category just for term insurance. By doing so, taxpayers would be incentivized to opt for term plans with higher coverage, promoting financial security for individuals and families.
Additionally, the sector also needs a re-evaluation of the GST rate, which currently stands at 18% for both health and term insurance. A reconsideration of the tax structure is essential to ensure that pricing benefits reach end consumers, encouraging more people to invest in life insurance. A balanced tax regime will not only spur adoption but also contribute to the industry's overall growth and stability.
Equal tax treatment for pension products
Retirement planning needs to be further incentivised in India to ensure a sound financial future in later stages of life. To address this concern, the insurance sector calls for the same tax treatment for pension products as NPS. This alignment would level the playing field, making pension and annuity products more attractive for long-term financial planning.
As of now, the existing tax norms levy tax on the entire annuity income, inclusive of both principal and interest. The industry needs a tax-free status granted to annuity income derived from these products to incentivise wider adoption. Such a move would not only encourage individuals to secure their retirement but also align annuity products with prevailing tax norms, fostering a conducive environment for their adoption.
Promoting health insurance in the post-pandemic era
The criticality of health insurance has been thrust into the spotlight in the post-pandemic world. Recognizing the need for innovation in the health insurance space, the sector proposes adjustments in tax structuring to accommodate emerging trends.
One crucial aspect is an increase in the maximum deduction limit for health insurance premiums. Proposals recommend raising the limit to Rs 50,000 for self, spouse, and dependent children, and Rs 1 lakh for senior citizen parents. This will ensure higher coverage under the health insurance umbrella. Also, Health Savings Account is a new concept which promotes consumers to save money, in order to make a health corpus which can be used in emergencies. This should be made tax exempt, and customers should be allowed to withdraw money only for healthcare expenditure. This would provide individuals with more disposable income to plan for escalating healthcare expenses, fostering a proactive approach towards health and well-being.
Making group health insurance lucrative for MSMEs
Group health insurance is a fail-safe way to make insurance more scalable and accessible for the masses, and so, it needs to be incentivised more. Employee health insurance is a critical part of MSMEs strategy in hiring and retaining workforce. However, what makes this even more expensive for businesses is that they cannot take input credit for GST paid on employee health insurance. While it might not be feasible for the government to waive it off for oganisations of all sizes, it should at least be considered for MSMEs as they form the backbone of India’s entrepreneurial future.
As Budget 2024 approaches, the insurance sector looks forward to changes that can propel the industry towards greater inclusivity and sustainability. These changes are critical steps to fortify the sector's role in shaping a healthier financial future for individuals and the nation as a whole. The upcoming Budget presents a valuable opportunity to enact these changes, laying the foundation for a robust and resilient insurance sector in India.
Sarbvir Singh, Joint Group CEO, PB Fintech
