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Even as the industry continues to drive innovation and expands its footprint, insurance penetration remains quite low
Insurance Budget 2025
Over the years, India’s insurance industry has emerged as a critical pillar of economic resilience and financial security, but there is still a long way to go. As the Finance Minister prepares to unveil the Union Budget on February 1, 2025, the sector anticipates announcements that could help India match up to the global financial protection index. Even as the industry continues to drive innovation and expands its footprint, insurance penetration remains quite low, especially considering India’s sizable population.
Tax benefits have historically been instrumental in bridging insurance accessibility and the upcoming Budget could help address affordability concerns for the masses. With the right policy push, 2025 could help us collectively make the vision of ‘Insurance For All by 2047’ a reality –
Revisiting Tax Exemptions Under Sections 80C & 80D
The insurance industry looks forward to a revision of tax exemptions under Section 80C, especially the deduction limit of Rs 1,50,000. The several investment options eligible for Section 80C including EPF, PPF, and Equity Linked Saving Schemes tend to consume this limit. This leaves little room for essential financial products like term insurance.
The insurance industry advocates the introduction of a separate category for term insurance under tax exemption. This will help in increasing the demand for term insurance amongst consumers thereby securing the financial future of their loved ones. The anticipation around GST rate cuts on insurance is already gaining momentum, which would make these vital protection products more accessible to a larger segment of consumers.
Similarly, revising the tax deduction limit under Section 80D to Rs 50,000 for self, spouse, and dependent children and Rs 1 lakh for senior citizen parents would incentivise greater investment in health insurance. Additionally, the introduction of tax-exempt Health Savings Accounts (HSAs), exclusively for healthcare expenditures, would empower individuals to proactively manage escalating healthcare costs.
A Level Playing Field For Pension Products
Currently, India has 149 million people aged 60 years or above, comprising 10.5% of the population. By 2050, this figure is expected to increase to 347 million, or 20.8% of the population. As the population in India ages, there is a need to prioritise financial products for retirement. It’s imperative that their retirement income helps in maintaining the same lifestyle they had when they were young. India needs a culture of retirement planning and thus it needs to be made more lucrative.
The insurance industry hopes the government offers the same tax benefits to pension products as those applicable to the National Pension System. Consumers are reluctant to investing in annuity products because both the principal and interest amount are taxable. If the annuity income is tax-free, then it would help increase their consumer appeal.
Incentivising Health Insurance For MSMEs
To make health insurance more inclusive and widespread, group health insurance policies should be made more attractive and rewarding, especially for Micro, Small, and Medium Enterprises (MSMEs). These businesses rely heavily on employee health insurance as a vital tool for attracting and retaining talent. However, as per the current regulations, MSMEs cannot claim input credit for the GST paid on employee health insurance premiums.
While a complete waiver might not be feasible for all businesses, the government may consider offering this relief to MSMEs, which are the bedrock of India’s entrepreneurial ecosystem and drivers of economic growth. By doing so, MSMEs can provide their employees with comprehensive health coverage, ultimately contributing to a healthier and more secure workforce.
Bringing these measures can pave the way for making insurance more inclusive for a broad spectrum of the population. By addressing these key reforms in Budget 2025, the government can strengthen the insurance sector and support India’s vision of sustainable growth.
Written By – Amit Chhabra, CBO, General Insurance, Policybazaar.com
Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.
