Insurance Industry Seeks Key Tax Reliefs and GST Reduction in Upcoming Budget

The insurance industry has put forth significant demands ahead of the Union Budget, focusing on easing tax burdens and improving insurance accessibility for the public. Industry leaders have proposed measures like lowering GST rates on insurance, revising tax exemptions for health insurance premiums, and introducing tax-saving retirement security bonds.

Decline in Insurance Penetration and Rising Medical Inflation

The industry's demands are backed by alarming data trends:

• Insurance Penetration: India's insurance penetration has marginally dropped to 3.7% in 2023-24, down from 4% in 2022-23.
• Medical Inflation: Estimated at a staggering 14%, making healthcare unaffordable for many.
• Out-of-Pocket Expenditure: National Health Accounts estimates show that households bear 44.1% of health expenses.
• Retirement Savings Gap: The World Economic Forum estimates that India's retirement savings gap could reach $85.4 trillion by 2050.

GST Reduction and Tax Relief Proposals

The Insurance Regulatory and Development Authority of India (IRDAI) has initiated talks on reducing GST rates. The industry strongly advocates for reducing the current 18% GST on insurance premiums to 12%.

Additionally, there is a push for revising tax exemptions under Section 80D of the Income Tax Act. Notably:

• The current deduction limit for health insurance premiums has remained stagnant at ₹25,000 since the 2015 Union Budget, despite escalating medical costs.
• FICCI's Proposal: Double the deduction limit to ₹50,000 and raise the preventive health check-up allowance from ₹5,000 to ₹20,000.

Boosting Retirement and Health Security

Key recommendations from the industry include:

1. Tax Relief for Annuities: Extend the ₹50,000 NPS deduction to annuities and simplify taxation on pension products to encourage retirement planning.
2. Zero Rating for Select Schemes: Exempt schemes like PMJJBY and smaller insurance policies (up to ₹2 lakh sum assured) from GST.
3. Retirement Security Bonds: Introduce long-term bonds with guaranteed returns and tax-free maturity benefits to incentivize retirement savings.
4. Health Check-up Benefits: Allow employers a separate annual deduction of ₹10,000 per employee for health check-ups.

Industry Leaders Emphasize Affordability and Accessibility

"Lowering GST or offering full tax deductions under Section 80D could make insurance more accessible, especially for the 'missing middle.' It will also strengthen financial resilience," said the MD & CEO of Bajaj Allianz General Insurance.

The CEO of Ageas Federal Life Insurance stressed the urgency for retirement-focused reforms, noting, "Simplifying taxes on annuities and pension products is critical to bridging India's retirement savings gap."

A Call for Holistic Reforms

The insurance industry's proposals align with broader goals of promoting financial security, reducing healthcare costs, and enhancing retirement savings. Whether these measures will find a place in the Union Budget remains to be seen, but the demands underline the pressing need for reforms in India's insurance sector.