The life insurers are hoping to see a reduction in the GST rate which is applied upon life insurance services
The 2021-22 union budget would be presented by Finance Minister Nirmala Sitharaman on 1 February amid the COVID-19 pandemic which accounted for millions of people losing their lives across the globe. In such a scenario, insurance products like life and health policies have emerged as a potent protection cover.
The Indian insurance industry is hoping that budget would bring in more such provisions that would encourage people to buy insurance products leading to deeper penetration for the industry.
One of the key expectations from the budget is a separate section under the income tax act to claim deduction on premium paid towards life insurance or enhancing the limit under Section 80C.
"A separate tax window for life insurance, without getting clubbed with the slew of other products under section 80C of the IT Act 1961, would be desirable. Right now, all long term and short term investments are vying for the same share of Rs1.5 lakh. Else the government can consider enhancing the limit under this section," says Naveen Tahilyani, MD and CEO, Tata AIA Life Insurance.
As an industry, we are continuously looking at strategies to reach a wider consumer base across the country, with relevant products and solutions. Government’s support in rationalising the tax structure would significantly boost Life Insurance penetration in the country, adds Tahilyani.
A similar sentiment was echoed by Vighnesh Shahane, MD and CEO, IDBI Federal Life.
"Section 80C of the Income Tax Act provides for a tax deduction of up to Rs 1,50,000on various investments such as insurance policies, PPF, principal amount paid towards a home loan, ELSS, NSC, NPS amongst others. With so many investment options available, this section is too low and too cluttered. Our recommendation would be to either keep a separate deduction section for insurance policies or there should be an increase in the limit under section 80C. This would allow customers to consider insurance not just as a tax-saving tool, but as a long-term means of fulfilling their financial goals," says Shahane.
The life insurers are also hoping to see a reduction in the GST (goods and services tax) rate which is applied upon life insurance services.
"Also, as per the goods and service tax (GST), life Insurance falls under the 18 per cent tax rate. Since insurance is an essential requirement for every individual for proper financial planning and protection, we believe that a reduction in GST from 18 per cent to 12 per cent or even lower is required,” says Shahane. Reducing the GST rate would play a significant role in increasing the penetration of life insurance in the country.
Life insurers also wish for the government to raise the exemption limit for TDS (tax deduction at source) on insurance commission and make annuities tax free.
"We also suggest that the current exemption limit for TDS on insurance commission is Rs 15,000 under section 194D of the Income Tax Act. Raising this exemption limit would provide a greater impetus to insurance agents. Further tax laws could be aligned to the regulatory minimum of seven times the cover for individuals above the age of 45 years," says Shahane.
If a policyholder purchases a pension product from an insurance firm, he has to pay a tax on the annuity. Making annuities tax-free would help to grow the demand for this segment in India and make these products more attractive to customers. It would also help to level the playing field with the National Pension Scheme (NPS) which is allowed a further tax exemption limit of Rs 50,000 over and above the Rs 1.5 lakh under section 80C.