Mumbai, January 25: Insurance industry expects many positive significant steps from the government to increase the insurance penetration, increase maximum tax exemption, lower Goods and Services Tax (GST), bring parity between pension products offered by life insurers and National Pension Scheme (NPS) and encourage women to ensure their lives.
“In order to enable customers to see life insurance beyond a tax saving tool and invest in it to fulfil long term financial goals, the government should either consider a separate deduction section or enhance the limit under section 80C of Income Tax Act, 1961, to Rs 3,00,000, since the current limit of Rs 1,50,000 is too low to cater to all the contributions it covers”, added Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance.
The insurance sector plays a critical role in an economy by securing future earnings of individuals and companies and enabling a balanced risk transfer, thereby protecting the GDP of a country. However, in India, this vital role and extent of insurance is both under-served and under-achieved.
Insurance industry experts shared their views and what they expect from the upcoming budget.
“For an individual, the income tax exemption limit can be raised from the current limit to Rs 3,00,000. This will provide a boost to the middle-income and lower-income population. Another area that could be further enabled is that of pension and retirement by moving annuity pay-outs into an EEE regime (Exempt Exempt Exempt) regime from the current EET (Exempt Exempt Tax) structure”, said RM Vishakha, MD and CEO, IndiaFirst Life Insurance.
Today the country is looking for a growth oriented budget, which could infuse larger positivity into the economy. This makes the Union Budget 2020 all the more critical. As Indian economy is staring at a lowest ever growth rate in over six years, the government will need to infuse greater optimism into the market that shall help the Indian economy tread on a growth trajectory.
“With the life insurance sector being one of the major contributors to the infrastructure sector, which is a critical component of economic growth, the government should focus on unlocking the growth potential of this sector. Therefore, our expectations from the Union Budget 2020 would be to implement measures and initiatives aimed at driving the consumers to embracing life insurance”, noted Prashant Tripathy, MD and CEO, Max Life Insurance
According to the Insurance Regulatory and Development Authority of India (IRDAI), the protection gap difference between insured losses and economic losses in the country is between 70-80 per cent, and the overall insurance penetration at 3.7 per cent of the GDP.
“A recent report by Lloyd’s of London estimated that India has the second largest insurance gap in the world of $27 billion after China which has an insurance gap of over $76 billion. Given this huge protection gap and its potential impact on the nation, we would like to see the government incentivising purchase of term plans (‘Risk of living to short’) and annuities (Risk of‘Living to long’) further in the forthcoming budget”, said Vineet Arora – MD and CEO-Aegon Life Insurance
Since term plans are priced efficiently and economically, providing more incentives – such as a separate rebate of Rs 25,000 to buy term plans – would certainly induce many of the under-insured to secure themselves. The burden of buying a Term Plan must be lessened by reducing the Stamp.
Industry experts believe that solving this anomaly would encourage citizens to buy annuities as the most reliable step towards retirement.
“It is recommended that in order to reduce gap between taxation of pension policies issued by life insurers vis-à-vis NPS of the CG, the additional deduction of Rs 50,000 for premium paid (as available for NPS) should be extended to pension policies issued by life insurers”, said S N Bhattacharya, Secretary, Life Insurance Council
For a pension plan issued by life insurance companies, an individual contribution to the pension fund is deductible under section 80CCC under the overall limit of section 80CCE of Rs 1,50,000. The Finance Act 2015 inserted a new sub-section (1B) under section 80CCD of the Income Tax Act to encourage investment in NPS by any individual by allowing an additional deduction of Rs 50,000 over and above the Rs 1,50,000 available under section 80CCE of the Act.
Life insurance meets the twin needs of providing protection as well as long-term savings with the goal of meeting living needs and consider a separate deduction to be provided for premium paid on individual life policies. It is particularly needed in the absence of the government’s social security scheme that is present in many global economies.
“If no separate deduction is provided, the existing limit of Rs 1,50,000 (i.e. section 80C) should be enhanced from Rs 1,50,000 to Rs 3,00,000, since the existing limit of Rs 1,50,000 is too crowded with both short-term and long-term investment vying for its share”, added Bhattacharya.