As the Insurance industry prepares for Budget 2025, top officials are advocating for significant tax reforms to enhance life and health insurance coverage in India. Key proposals include the introduction of a separate tax deduction for term insurance premiums and an increase in the deduction limit for health insurance premiums under Section 80D. These changes aim to address rising healthcare costs, improve life insurance penetration, and promote retirement planning.
1. Separate Tax Deduction for Term Insurance
Industry executives, including Sandip Goenka, CEO of ACKO Life Insurance, are emphasizing the need for a distinct tax deduction for term insurance premiums. This move aims to underscore the importance of adequate life insurance coverage. The proposal suggests enhancing the existing tax deduction limits under Section 80C, which currently covers life insurance premiums, or creating a separate limit specifically for term insurance and pension plans.
The rationale behind this proposal is to boost life insurance penetration in India, which remains relatively low compared to global standards. Furthermore, the introduction of mandatory basic term life insurance for formal employment could provide essential financial protection for dependents in case of an untimely demise.
2. Increase in Section 80D Deduction Limit
With healthcare inflation soaring at an estimated 12-15%, insurance officials are advocating for an increase in the Section 80D deduction limit for health insurance premiums. Anup Rau, MD & CEO of Future Generali India Insurance, points out that the last adjustment to this limit occurred in 2015-16.
The proposal includes linking the deduction limit to inflation, allowing for automatic revisions every few years. This adjustment is crucial, especially for senior citizens facing rising premium costs. Srikanth Kandikonda, CFO of ManipalCigna Health Insurance, suggests increasing the limit to Rs 50,000 for all taxpayers and Rs 1 lakh for senior citizens to alleviate their financial burden.
3. Retirement Planning Incentives
The insurance sector is also focusing on retirement planning, with Jude Gomes, MD and CEO of Ageas Federal Life Insurance, highlighting the need to abolish taxes on annuity or pension income. As the retirement savings gap is projected to reach a staggering $85 trillion by 2050, simplifying tax structures around annuities could encourage more individuals to participate in retirement planning.
Additionally, there is a call to extend the existing Rs 50,000 tax exemption for National Pension System (NPS) contributions to pension plans offered by life insurance companies. This would provide further incentives for individuals to invest in retirement products.
4. Mandatory Basic Term Life Insurance
The proposal for mandatory basic term life insurance coverage for formal employment mirrors existing requirements like the Employees’ Provident Fund (EPF). This initiative aims to ensure that all employees have a minimum level of life insurance, thereby enhancing financial security for their families.
5. Annual Adjustment for Health Insurance Deductions
The insurance industry advocates for a systematic approach to adjusting health insurance premium deduction limits in line with inflation. By doing so, the government can ensure that these deductions remain relevant and effective in providing financial relief to policyholders.
Important Details & Evidence
- Healthcare Inflation: The insurance sector estimates that healthcare inflation is currently between 12-15%, underscoring the urgent need for improved health insurance coverage.
- Historical Context: The last increase in Section 80D deduction limits occurred in 2015-16, indicating a long-standing need for updates.
- Retirement Savings Gap: The projected retirement savings gap of $85 trillion by 2050 highlights the critical need for reforms in retirement planning incentives.
Final Takeaways
The insurance industry’s proposals for Budget 2025 reflect a comprehensive approach to enhancing life and health insurance coverage in India. Key recommendations include:
- Introducing a separate tax deduction for term insurance to encourage adequate life coverage.
- Increasing the Section 80D deduction limit for health insurance premiums to combat rising healthcare costs.
- Abolishing taxes on annuity income to promote retirement savings and planning.
- Implementing mandatory basic term life insurance coverage for formal employment to secure financial futures.
These changes, if implemented, could significantly improve the insurance landscape in India, promoting greater financial security for individuals and families.