2 min read.Updated: 16 Jan 2021, 07:36 AM IST Edited By Avneet Kaur
As per the GST, life Insurance falls under the 18% tax rate. We believe that a reduction in GST from 18% to 12% or even lower is required.
By Vighnesh Shahane
The ongoing pandemic has emphasized the need for insurance as financial protection for one self and one’s family against the uncertainties of life. While there has definitely been an increase in the awareness of insurance among consumers, especially term and health insurance, there is still a long way to go. With the upcoming Union Budget 2021 to be presented by the Finance Minister of February 01, we have a few recommendations from a life insurance industry perspective that we hope will be addressed.
1) Section 80C of the Income Tax Act provides for tax deduction of up to ₹1,50,000 on various investments such as insurance policies, PPF, principal amount paid towards 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.
2) Further tax laws could be aligned to the regulatory minimum of 7 times the cover for individuals above the age of 45 years.
3) 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 ₹50,000 over and above the ₹1.5 lakh under Section 80C.
4) We also see that the current limit of health premium (including preventive medical check-up costs) is low and needs to be increased.
5) As per the Goods and Service Tax (GST), life Insurance falls under the 18% 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% to 12% or even lower is required. Reducing the GST rate would play a significant role in increasing the penetration of life insurance in the country.
6) We propose an increase in FDI from 49% to 74%, in line with AMCs which are at 100% FDI and banking which is at 74% FDI. Insurance is a capital intensive business and the Indian partners may be reluctant to infuse the capital required. With this pandemic, some companies might also need capital infusion to conserve Solvency Margins. Finally, it gives the foreign promoter an opportunity to buy out its cash-strapped Indian partners.