Budget 2024: Higher tax exemption limit to reduction in GST rate, what is insurance sector expecting this time

Union Budget 2024: Indian insurance firms have been expecting various tax exemptions from the Central government in the upcoming Union Budget to improve the appeal and accessibility of insurance products, thus encouraging wider adoption across the country. Insurers specialising in life coverage are advocating for tax relief on annuities and a reduction in the goods and services tax (GST) applied to their other offerings. 

Additionally, the sector is optimistic that the government will revise the current tax framework to incorporate exemptions for life insurance products. Presently, the new tax system does not provide any exemptions for these products, unlike the Section 80C under the Old Tax Regime.

Experts in the field stress the significance of tax benefits in expanding the reach of the insurance sector. They advocate for revisions to section 80C of the Income Tax Act to increase the limit for insurance premium payments. This adjustment would motivate more individuals to allocate funds towards insurance products. The intended outcome is to widen the accessibility of insurance to the general population while guaranteeing adequate coverage for all citizens.

In Union Budget 2023-24, Finance Minister Nirmala Sitharaman made a significant decision by removing the tax-free status granted to the maturity proceeds of traditional endowment policies. This move dealt a major blow to numerous life insurance companies. Companies are also hoping some relaxation on this front. 

Here is what experts say:

Rakesh Jain, CEO, Reliance General Insurance

“We laud the IRDAI's initiatives to prioritise the wellbeing of policyholders, from implementing cashless systems to emphasizing Ombudsman schemes, ensuring policyholders' interests are safeguarded. However, with increasing climate change and economic development-related risks, there is a pressing need to protect against unforeseen disruptions. The upcoming Union Budget 2024 presents an opportunity to promote sustainable development goals by prioritizing risk management and protection.

We recommend that the government consider the following measures:

> Increase the upper limit for tax exemption on health insurance premiums to INR 75,000.
> Introduce financial support or tax benefits for extensive insurance on electric vehicles (EVs).
> Give tax advantages for cyber insurance, particularly for small and medium businesses, to enhance their ability to withstand cyber risks and data breaches.
> Mandate health insurance to all employers for their employees to bring holistic protection to the working class.

S Prakash,  MD & CEO Designate, Galaxy Health Insurance Company Limited

Universal Health Schemes: "The Universal Health Scheme requires better implementation, greater participation of multi-speciality and corporate hospitals, and improved reach to the deserving BPL population. Additionally, uniformity in its implementation across all states needs to be addressed," said Prakash.

Other Expectations:

> Reduce GST on health insurance policies from 18% to 12%, while continuing to allow claiming the ITC for insurers.

> Waive GST for senior citizens, physically disabled individuals, and other disease-specific categories.

> Extend Section 80-D (premium paid under medical insurance) deductions under the New Tax Regime, similar to the Old Tax Regime.

> Raise the Section 80-D limit to Rs. 50,000 for self, spouse, and children, and Rs. 1 lakh for senior citizens.

> Include personal accident cover under the Section 80-D limit ambit.

Karthik Chakrapani, Chief Business Officer, Pramerica Life Insurance

“Achieving 'Insurance for All by 2047' is our primary objective, focused on making insurance services more available, accessible and affordable for everyone. We support the implementation of a specific tax deduction limit for life insurance, particularly term insurance and traditional participating & non participating insurance, in addition to existing 80C benefits. These measures will encourage people to invest in life insurance, ensuring long-term financial security." 

He added that expanding the Rs 50,000 tax exemption currently offered under Section 80CCD(1B) for the National Pension Scheme to include pension and annuity plans from insurance companies will enhance the appeal and accessibility of retirement planning, creating a fairer environment in the sector.

Initiatives like Bima Sugam, signifies major advancements in modernizing the insurance sector, simplifying access and benefits for customers. Additionally, prioritizing life insurance for the defence sector & their personnel is crucial. "The government should focus on developing initiatives like Ayushman Bharat specifically addressing the needs of armed forces & CAPF personnel, recognizing the importance of safeguarding those who protect our nation,” Chakrapani added.

Prasun Sikdar, MD & CEO, ManipalCigna Health Insurance

“The government has two primary objectives (a) ensure wider access to healthcare services at affordable prices and adequate quality (b) Reduce the out-of- pocket expenditure. Keeping this in mind, the National Health Policy has proposed an increase in public expenditure to 2.5% of GDP by 2025. Thus, in the upcoming union budget, we expect the Finance Minister to announce higher allocation of funds for healthcare compared to what was proposed in interim budget to meet the targets of the National Health Policy," Sikdar said. 

"Addressing another objective, reducing out-of-pocket expenses, is equally critical. Currently, these expenses are still high relative to global standards, indicating a considerable protection gap. Private health insurance is vital in bridging this gap. The insurance regulator, IRDAI has also set a vision of achieving Insurance for All by 2047, marking a century of India's independence. Thus, our sincere submission to government is to reduce the current 18% GST rate on essential service like Health Insurance. Further, specific segment considerations are also required especially for middle-income and senior citizen segments who are struggling to meet the rising healthcare costs. Lowering the GST burden on the health insurance premiums will be a huge respite for missing middle and senior citizens to get access to quality healthcare they need and help to significantly boost insurance penetration across India by driving affordability.”

Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance

"As an industry, some of our budget expectations from the finance ministry is to consider lower GST on life insurance products. Additionally, in the pension products category, with the objective of securing post-retirement financial needs of the individuals, we urge the government to align life insurance annuity or pension products with the National Pension Scheme (NPS) and allow the similar additional deduction of Rs. 50,000 or more for life insurance annuity or pension products under Income Tax," said Chugh. 

"We also request the ministry to introduce Long Term Capital Gain taxability for all high-value traditional life insurance plans (more than Rs.5 lakhs aggregate annual premium), in line with high-value ULIPs. This will bring in uniformity and tax efficiency for insurance customers at par with other similar financial products in the market," he added.