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The year 2016 was a significant year which witnessed major reforms like GST and demonitization, being the crucial ones. The reforms will have a long term impact on the economic landscape of the country. This year's budget, which is going to be presented on February 1,2017 by the FM needs to inculcate some very important and essential aspects related to the insurance arena. Recent developments have projected a plethora of aspirations and expectations from the budget. Let us have a look at some of the most important expectations to pose from the Finance Minister as far as the insurance industry is concerned.
1. Increase the tax exemption Limits under Section 80 C The current tax deduction
limit under Section 80 C is Rs 1.5 Lakh inculcating all types of investment instruments like life insurance policy, Public Provident Fund (PPF), National Savings Certificate (NSC), Equity linked saving scheme (ELSS), tax saving bank fixed deposits, etc. This makes a life insurance policy an option and not an essential instrument. The life insurance penetration is still tumbling in India, which currently is at 2.72% for the year 2015 dipping from 3.4% in the year 2011. It is imperative to broaden the tax deduction limits under section 80 C from Rs 1.5 Lakh to atleast Rs 2 Lakh to accommodate the life insurance and pension products to offer an equitable space. In fact, a separate income tax limit for offering tax deductions to the life insurance premiums over and above the existing regime will make a remarkable inclination towards life insurance products. It is a hard fact that life insurance is still considered as an option and not an essential financial instrument by many. Jostling between which instrument one should invest the money to get a tax deduction under section 80 C makes a life insurance policy merely a standby option. A separate window or increase in the overall tax deduction limits under section 80 C will offer a big boost towards an increase in the household savings and a decrease in the tax outflow. Higher tax deduction limits and lower tax payments is the expectation which holds the first place.
2. Increment in tax exemption limits under Section 80 D
After life insurance, health insurance is another major essential which many are lacking in the country today. Even if, for those who have a health insurance policy are not adequately insured. Aggravating health care costs, rising lifestyle related diseases, shrinking affordability to avail health care services, etc. forms a solid reason for individuals to possess a health insurance plan to shield themselves and their families from medical inflation. The existing tax deduction limit under section 80 D is Rs 25,000 for an individual (less than age 60)paying health insurance premium for self, spouse and/or dependant kids. Additionally, one can claim a maximum tax deduction of Rs 30,000 for paying health insurance premium for senior citizen parents. The health insurance premiums are quite expensive and the affordability poses a challenge. Higher tax deduction limits under section 80 D for the individual and parents will certainly allow a greater health insurance penetration to avail the protection offered under health insurance plans and to choose the right amount of health cover. The anticipated tax deduction limit should increase from Rs 25,000 to Rs 50,000 for the benefit of the masses under this year’s budget.
3. Exempt insurance products from GST
As per the existing regime, the service tax levied on insurance policies is 14% plus 0.5% education cess and 0.5% Krishi Kalyan cess making it 15% in totality. As per the latest update on GST tax regime structure from the GST Council, which has introduced 4 tier tax structure of 5% (lower rate), 12% (standard rate), 18%(standard rate) and 28% (higher rate). The lower tax rates are reserved for the essential or common use items or commodities and higher tax rates along with additional cess over and above the GST rates applicable for the luxurious and de-merit commodities. Majority of the products and services are expected to fall under the standard rates range of 12% to 18%. To make insurance products available for the masses, it is important to make them affordable. With additional tax rates over and above the base premium, the insurance premium amount bloats and make it an expensive and unaffordable proposition for the prospective population. Insurance policies should have zero or minimal tax rate structure imposed on it to make it a reasonably priced portfolio and create a demand for insurance to aggravate penetration levels in the country.
4. Parity among cashless initiatives for the insurance sellers
Post the demonetization move, the government has introduced an initiative to offer discounts on the insurance products if bought online from the public sector insurance companies. The discount offered was 8% on the premium of life insurance policies and 10% on the premium of general insurance policies. Buying online offers multiple benefits to the consumer like no paperwork, minimal hassles, quick policy issuance, no payment hassles,etc. To promote the cashless movement, the budget should offer similar initiatives to the private insurance companies and other insurance intermediaries which are selling insurance online. It will make the insurance products more affordable and economical for the people opting for a digital mode of purchasing a policy and will intensify the digital dream of India in the insurance space. Lastly, broadening the tax exemption limits both under section 80 C & 80 D will magnify the thrust in the health and life insurance domain. There is a huge scope for increasing the insurance penetration in India and moving the economy towards a cashless economy. Widening of insured population will give a boost to the economy overall and make the insurance products affordable and accessible to all sections of the society. Varied economical developments last year have powered many aspirations and expectations from this year’s budget. Let us hope for a robust budget inculcating the above mentioned wishlist for a positive and broader impetus in the insurance space for consumers ,companies and intermediaries. The author is founder and CEO of comparepolicy.com
