The insurance industry anticipates higher deductions for medical insurance premiums in the interim budget for 2024
For the insurance industry, the Union Budget 2023 was a difficult pill to chew in many respects since it ignored tax-free status for annuities and pensions, a separate deduction for house insurance, an increase in the limit under Sections 80C and 80D, and a reexamination of GST rates. Rather, a tax on the maturity amount of life insurance contracts when the total early premium exceeds Rs 5 lakh was introduced in the Budget.
In compliance with the new tax law, annuity income from pension plans was also subject to taxation at the marginal tax rate. The googly also took the shape of a new personal tax system that would not allow deductions under Section 80C and would not impose taxes on persons with incomes up to Rs 7,00,000; the finance minister even suggested making the new regime the default. Because many taxpayers purchased insurance policies with the intention of obtaining tax benefits—but with no deductions available under the new regime—investment insurance became less appealing—this had an effect on the capacity of life insurance businesses to sell policies. This caught me off guard. The action by the finance ministry, however, could have resulted from the adoption of insurance plans after COVID-19, when the public believed that having health and life insurance was a need rather than a choice.
Forecasting the budget for the insurance industry is like to betting on the “Indian Derby.” Market players, if you were to poll them, would prefer that the finance minister examine the GST rates, particularly those for health and term insurance, which are 18%, and endowment plans, which are 2.25 percent in the second year and 4.5 percent in the first. Although health insurance and term insurance plans are the most popular products, they have not yet gained much traction in rural India. This will most likely assist the government in realizing its goal of “Insurance for all by 2047.”
The creation and execution of the Indian Risk-Based Capital (Ind-RBC) Framework for the Indian Insurance Industry is a top priority for the Insurance Regulatory and Development Authority of India (IRDAI), as part of its developmental strategy. The finance ministry could implement new capital requirements that resemble the AT1 Bond guidelines that the RBI now has. The finance minister will reevaluate the new regime, which was announced in the previous year’s budget as a default regime with no deductions under Section 80C coming into effect, in light of the deaths caused by different natural disasters and the compensation paid by the federal and state governments.
When it comes to natural disasters, India is also experiencing difficulties because of droughts, tropical cyclones, earthquakes, floods, and wildfires; yet, there is little insurance coverage against these calamities.
With the onset of new infrastructure projects being built across the nation, general insurers anticipate that the government will implement a new set of measures, such as tax breaks on the premiums paid by the insured, in response to the numerous climate-related disasters that occurred in 2023 and caused extensive damage to both lives and property.
With the possibility of a new Covid strain, there is expectation in the health insurance business that premium deductions would rise. In order to make the National Pension Scheme a desirable investment choice, it is also necessary to consider the likelihood of extending the present 25% tax exemption ceiling and eliminating the current 25% tax on annuity income. The finance minister will need to find a balance that benefits the whole economy rather than just one industry, even if the insurance sector will have its wish list.
