NEW DELHI
:
As India’s insurance regulator seeks to insure every citizen by 2047, the life insurance industry wants the government to add more incentives to increase penetration in the Union Budget 2024-25. The industry believes that the incentives would not only make insurance affordable, but would also facilitate long-term funds for investing in key areas of the economy.
“India’s infrastructure sector is poised for a significant growth and requires a huge investment to support that growth. Life insurance firms, with their long-term assets, can help spur this sector. The upcoming budget may look at incentivizing investments into life insurance products to facilitate infrastructure and overall development of the country,” says Subhrajit Mukhopadhyay, executive director, Edelweiss Life Insurance.
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Here are the four key suggestions from the insurance industry:
1) Tax-free annuities
Life insurance companies offer annuity products to help retirees earn regular pension during their lifetime. “Annuities are the only solution, that provide complete protection from the perspective of living longer (i.e. outliving one’s corpus), by providing a regular flow of income throughout one’s lifetime, purchased in lieu of a single lump-sum amount,” says Mukhopadhyay.
However, this pension amount is taxable. The industry demands some tax incentive to make it more attractive. “The gap between needed and available retirement funds is expected to reach $85 trillion by 2050. To help close this gap, make taxes simpler or remove them for pension and annuity products to encourage more people to invest in these important financial protections,” says Satishwar B., managing director and chief executive, Bandhan Life.
2) NPS-like tax incentive on annuity plans
The contribution to the national pension system (NPS) gets tax deduction under Section 80CCD (1b) of the Income Tax Act. Once the account matures, 60% of the accumulated corpus can be withdrawn tax free while the remaining 40% must go into annuity plans to generate regular pension. “The current ₹50,000 tax exemption for the NPS under Section 80CCD(1B) should also apply to pension and annuity plans provided by life insurers to encourage more people to avail them,” says Satishwar.
Vaibhav Kumar, senior vice-president and head–product management and e-commerce channel, Max Life Insurance, agrees. “Currently, annuity products are taxed both at the entry stage (with no benefit under Section 80C) and at the payout stage [with no benefit under Section 10(10D)]. Making annuity payouts tax-free could alleviate the financial burden on retirees and ensure a stable income stream for them.
3) Reducing GST
The awareness around term insurance is low. Most people tend to buy traditional life insurance policies. While the GST on term plan premiums is 18%, it is 4.5% (first-year premium) and 2.25% (second-year and future premiums) in traditional plans. Unit-linked insurance policies also attract a GST of 18%. The GST on single-premium annuity policies is 1.8% from 1.5% earlier before the implementation of the GST.
“Reducing the GST burden on term insurance and annuity products could make these essential financial tools more accessible to a broader population. These products uniquely cover the two most critical risks for consumers: the risk of dying too early and the risk of living too long. A lower GST could enhance financial protection for families across the country,” says Kumar.
4) Exclusive tax deduction for term plans
The overall tax deduction limit of ₹1.5 lakh in section 80(C) is too less. It includes a lot of options including premium paid towards life insurance policies. The limit was last revised in 2014 by the then finance minister Arun Jaitley. The industry demands a dedicated tax deduction for term life insurance policies, if the limit cannot be hiked.
“Permitting individuals to deduct the entire amount paid for term life insurance premiums from their taxable income, without any decrease due to claims made under other sections, such as 80C, will encourage more people to buy insurance. This means they get the full tax benefit for their insurance premiums, making insurance more financially appealing,” says Satishwar.
