Insurance sector wish list ahead of 2024 budget
The insurance sector is looking to Budget 2024 to deliver practical action to solidify the government’s commitment to insurance for all by 2047.
As the newly elected government enters its third term after the elections, it is gearing up to present a new budget that will usher in a major transformation in India’s financial sector. The insurance industry is looking to long-overdue reforms to propel the sector forward and support the economy.
With insurance penetration in India still lagging behind global standards, the industry is urging policymakers to introduce meaningful changes that will encourage adoption, increase accessibility and drive growth. Tax incentives have proven to be a powerful catalyst in the past, and the sector expects Budget 2024 to provide tangible steps to solidify the government’s commitment to insurance for all by 2047.
Tax Review for Pension Products
As India’s population ages, there is a need to recognize their needs and reassess taxes on pensions to ensure financial security for this segment. As millions of Indians enter their golden years in the coming decades, their retirement income must be able to sustain them in a decent standard of living. To ensure a secure financial future for India’s aging population, retirement plans need to be made more attractive. The insurance industry is urging the government to level the playing field by granting pension products the same tax benefits as the National Pension Scheme (NPS).
Currently, pension income is fully taxed, including both principal and interest, which discourages individuals from investing in such products. By exempting pension income from tax, the government can provide incentives for people to plan for retirement, align pension products with existing tax norms, and create a supportive environment for growth. Such measures will empower individuals to secure their financial future and promote a culture of retirement planning in India.
Providing health insurance incentives for small businesses
To make health insurance more comprehensive and inclusive, especially for small and medium enterprises (MSMEs), group health insurance policies should be made more attractive and rewarding. These enterprises rely heavily on employee health insurance as a vital tool to attract and retain talent. However, the current GST rules impose a significant burden on MSMEs as they are unable to claim input credit on GST paid on employee health insurance premiums.
While a complete exemption is not feasible for all businesses, the government could consider providing this relief to MSMEs, which are the bedrock of India’s entrepreneurial ecosystem and the engine of economic growth. By doing so, MSMEs can provide comprehensive health insurance to their employees, ultimately contributing to a healthier and more stable workforce.
Expanding the scope of tax deduction under Article 80C
The insurance industry has been demanding a comprehensive overhaul of tax deductions, particularly under Section 80C, which has a longstanding limit of Rs 1,50,000. With various other eligible expenses like PPF and loans exhausting this limit, there is little room for essential financial investments. To address this, a dedicated tax exemption category is needed for term insurance. This will enable taxpayers to opt for comprehensive term plans and promote financial stability for individuals and families. Moreover, the industry wants a reevaluation of the current 18% GST rate on health and term insurance. Reducing this limit to 5% will pass on the pricing advantage to the end consumer, which will in turn lead to greater adoption of these essential protection products.
The revised and relaxed tax structure will further expand the adoption of life insurance by ensuring that consumers can enjoy the benefits of lower prices. A balanced tax system is essential for the growth and stability of the industry and ultimately the welfare of policyholders.
By Tarun Mathur, Co-Founder & CBO, Policybazaar.com
disclaimer:The views expressed in this article are those of the authors and do not necessarily represent the views of the publishing house.