Budget expectations: Universal health scheme, separate tax deduction limit and no GST on insurance plans

In the wake of a transformative year for the insurance industry, marked by the influx of new companies, technological innovations, and changing consumer dynamics, the stage is set for competitive landscape with the need to increase insurance penetration in the country, which is currently at 4%. The good part is that Indians have become more aware of the need and urgency of buying a life and health insurance policy, partly triggered by Covid-19. With insurance companies growing steadily and contributing to the Indian economy here is a list of budget expectations of the industry leaders:

Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance 

First and foremost as an insurer our job is on the protection side. When we look at our country’s growth, it is important to also look at the factors that are pulling our country’s growth down. In India, about 7% of the population which is about 10 crore people fall below the poverty line because they can't afford health expenses. To bring 10 crore people above the poverty line will cost about 1.2% of the GDP. Hence, I feel we must look at a universal health scheme for our citizens.

Another pertinent issue is adequate social security for the country. The aging population is a rising concern and health insurance and subsequent tax exemption for them is required. On the taxation front, I want to emphasize that insurance is not like a luxury commodity, and taxing it heavily makes it difficult for people to get financially protected. We should see insurance as a necessity that everyone should afford. Making health insurance mandatory for employers, like in developed countries but at the same time it should be at the rate at which many state governments offer health covers, making it more affordable, which can help more people be financially secure, which can further boost the economy.

Additionally, the budget must address uncertainties like the next pandemic and climate-related catastrophes. We must remember that the pandemic cost 12% of our country’s GDP and in the last year itself we saw 8 catastrophic events which incurred huge losses. If you look at the Sikkim or Chennai floods, only a fraction of the losses were insured leaving a significant 85-90% of the population financially unprotected which brings down the economy. Compared to developed countries, if a loss happens, the economy moves up because about 95% of the population is insured. We must have parametric insurance, and pandemic pools in place to deal with such uncertain events. How do you encourage the social security issue and how do you address these broader concerns that are going to impact the economy and the country are the big issues that should be addressed in the budget.

Satishwar B, MD & CEO, Aegon Life Insurance  

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 ₹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.  

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.  

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 ₹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.  
 

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Anand Roy, MD & CEO, Star Health And Allied Insurance Co. 

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 importance of health insurance in safeguarding families and senior citizens against increasing hospitalization costs and alleviating financial strains, in light of these circumstances the insurance industry would urge the government to consider a reduction in existing 18% GST rate on retail health insurance products. This reduction in GST rate would not only enhance 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.“  

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 80 C 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, principal sum of a home loan, including life insurance.  

The other demands are to make pensions tax-free in the hands of annuitant. The current Rs 50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to pension and annuity plans of insurance companies to provide a more level playing field.