In a historic development on January 18, the Cabinet Committee on Economic Affairs gave a stock market listing "thumbs up" to New India Assurance, United India Insurance, Oriental Insurance, National Insurance, and General Insurance Corporation of India; five of India's bellwether general insurers. The government will be selling 1/4th of its stake in these companies at an expected valuation of Rs 15,000 to Rs 18,000 crore. Currently, there are no listed general insurance companies in India.
From a general insurance standpoint, India remains underpenetrated at just 0.7 per cent of GDP; we've witnessed a gradual decline in the space since 2009. Perhaps, the aforementioned development is symbolic of the government's intent to lend a fillip to the sector in this budget?
A revision of Section 80D limitsHealth insurance premiums allow for an annual deduction of up to Rs 25,000 (Rs 30,000 for senior citizens) under Section 80D of the IT Act. According to a recent IBEF report, health insurance accounts for just about 27 per cent of the overall general insurance pie in India. Despite escalating healthcare costs and burgeoning lifestyle related illnesses, many individuals continue to rely entirely on their company provided health covers, which all too often come up short during severe crises. In the current budget, we're likely to witness an upward revision in 80D limits to give salaried people an additional incentive to purchase health insurance and safeguard their personal finances from potentially catastrophic situations.
Besides a revision on 80D limits, we're also likely to see steps taken to encourage (or compel!) people to buy home insurance. In recent times, India has witnessed an alarming number of natural calamities, many of which have led to immense loss of property. Needless to say, those without home insurance have suffered tremendously. It wouldn't be surprising to see home insurance being made mandatory in the current budget.
Change in taxation norms for annuity incomesThe last day inflow of Rs 2,355 crore into LIC's low-yielding annuity plan "Jeevan Akshay VI" is enough proof that we're going to remain a pro-annuity community of investors for some time to come. The caveat is that annuities, by themselves, do not provide outstanding returns. To exacerbate the issue further, incomes received from these policies are taxed as normal income.
There's a case in this budget for a revision of the way annuities are taxed. The demonetisation-led digitisation of payments and the subsequent widening of the tax net has created scope for tax cuts; and there's a good chance that Finance Minister Arun Jaitley will use this opportunity to neutralize the still lurking ghosts of the "EPF Taxation" proposal that was met with intense ire from the soon to retire segment of the populace last year. What better way to bring cheer to near retirees than to reduce or eliminate the tax burden on their annuity incomes?
Populist motives aside, increased tax-efficiency for annuities could just as well arise as a fortuitous side effect of NPS reforms. The NPS currently mandates an annuity purchase with 40 per cent of the final corpus. The removal of taxation from annuities would be a step further in bridging the tax gap between the NPS, and its lower growth-potential cousin, the EPF.
Clarity on GST applicable on insurance premiumsThere's a pressing need for clarity on how GST will affect insurance premiums. Currently, term and health insurance premiums attract a service tax of 15 per cent, single premium non-linked plans attract 1.5 per cent, and endowment plans 3.75 per cent for the first year. Post GST implementation, this figure is expected to increase to 18 per cent for term and health, and 4.5 per cent for first year endowment premiums.
It's no secret that the present government views life insurance as a critical aspect of financial planning; this fact is underscored by their successful implementation of Pradhan Mantri Suraksha Bima Yojana (PMSBY) and the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). Per Government data, the two schemes cover 9.72 crore and 3.06 crore individuals respectively as on date.
Given the government's "pro-safety net" stance, it remains quite likely that the current budget will reduce tax burdens on pure term and health insurance plans to encourage their proliferation - a GST of 18 to 24 per cent may be high enough to deter the growth of the segment.
For the common man who relies on insurance both as a safety net and a savings tool, it's going to be a suspenseful ten days. For now, positive surprises seem to be in store for insurance buyers.
