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Budget 2024: Four ways Budget can sell more insurance policies

Budget Expectations: As the countdown to Budget 2024 commences, the Indian insurance sector stands on the verge of changes that could potentially redefine its course. India’s insurance penetration remains notably low on the global stage, underscoring the role tax benefits play in incentivizing insurance purchases. Acknowledging this influence, the industry advocates for adjustments aligning with the overarching goal of insuring India comprehensively by 2047.
In the post-pandemic world, where the resonance of financial security has intensified, the sector places its optimism in tax incentives as the impetus to elevate the nation’s protection index to meet global standards.

Here, we delve into the key proposals for change, building upon the initial expectations outlined and incorporating insights from the discussion on restructuring tax benefits:

Reassessing tax deductions within Section 80C
The foremost expectation centres around a thorough reassessment of tax structures under Section 80C. The longstanding deduction limit of Rs 1,50,000 warrants a comprehensive review and potential expansion. The proposal advocates for the creation of an exclusive exemption category dedicated to term insurance, thereby addressing the challenge posed by the depletion of the current limit.
This aims not only to preserve the tax benefit for policyholders but also to incentivize taxpayers to opt for term plans with broader coverage, fostering enhanced financial security for individuals and families. Moreover, a stand-alone, additional deduction of Rs 50,000 for pure term insurance premium payments can go a long way in enhancing India’s insurance penetration.

Furthermore, there’s a parallel need for a re-evaluation of the Goods and Services Tax (GST) rate, currently set at 18% for both health and term insurance. A balanced tax structure is imperative to ensure that pricing benefits directly reach end consumers, thereby encouraging broader investment in life insurance.

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Ensuring parity in tax treatment for pension products
Incentivizing retirement planning emerges as a crucial aspect of ensuring a sound financial future for individuals in the later stages of life. The sector calls for equal tax treatment for pension products, mirroring the National Pension Scheme (NPS). This alignment seeks to level the playing field, making pension and annuity products more appealing for long-term financial planning.

The existing tax norms, which currently impose taxes on the entire annuity income, including principal and interest, necessitate a shift. The proposal advocates for granting tax-free status to annuity income derived from these products. Such a move not only encourages individuals to secure their retirement but also aligns annuity products with prevailing tax norms, fostering a conducive environment for their widespread adoption.

Promoting health insurance in the post-pandemic era
The post-pandemic landscape underscores the critical importance of health insurance. Recognizing the need for innovation in the health insurance space, the sector proposes adjustments in tax structuring to accommodate emerging trends.

Key proposals include an increase in the maximum deduction limit for health insurance premiums. Recommendations suggest raising the limit to Rs 50,000 for self, spouse, and dependent children, and Rs 1 lakh for senior citizen parents. This adjustment aims to ensure higher coverage under the health insurance umbrella, addressing the evolving healthcare needs of individuals.

Additionally, the introduction of Health Savings Accounts, designed to encourage consumers to save for emergencies, should be made tax-exempt. This can empower individuals with more disposable income to proactively plan for escalating healthcare expenses, thereby fostering a holistic approach towards health and well-being.

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Making group health insurance appealing to MSMEs
Group health insurance emerges as a reliable strategy to make insurance more scalable and accessible for the masses. Recognizing its significance, the sector emphasizes the need for further incentivization, particularly for Micro, Small, and Medium Enterprises (MSMEs). Employee health insurance constitutes a critical component of MSMEs’ strategy in hiring and retaining a workforce. The challenge lies in the inability to claim input credit for Goods and Services Tax (GST) paid on employee health insurance.

While a blanket waiver may not be feasible for all organizations, considering it for MSMEs becomes imperative, given their pivotal role in India’s entrepreneurial future. The targeted waivers would alleviate the financial burden on these enterprises, ensuring their sustained growth and contribution to the overall economic landscape.

As the insurance sector envisions Budget 2024, these proposed adjustments extend beyond mere policy tweaks. They can help in shaping a healthier financial future for both individuals and the nation.

The author is CBO – Life Insurance,

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