Life insurance, one of the most important segments of financial services, has contributed immensely to various sectors through its ability to make long-term investments and provide employment opportunities. Currently, however, it is reeling under a slowing economy and adverse regulatory changes instituted in the last couple of years. At such a time, the industry needs government support to help it further contribute to nation-building.
In the Budget, the government should address the following to boost the life insurance industry:
1) A relook at investment limits for tax rebates and certain tax provisions would augur well. Life insurance is a socio-economic instrument. In the absence of a robust social security system, life insurance premiums should be given additional exemption of at least R1 lakh instead of clubbing it with other investments under Section 80C. This will inculcate the habit of systematic long-term savings among retail investors.
2) To encourage customers plan their retirement, investment in pension premiums should be allowed a separate deduction. Currently, such investments are clubbed with Section 80C investments. Annuity is unpopular at present as the maturity proceeds are fully taxable as income, which effectively means income is taxed twice.
3) The current limit of R15,000 in health insurance must be enhanced to at least R50,000. Currently, an individual gets a deduction of R15,000 for health insurance premium (apart from a similar deduction on premiums paid for lives of their parents). Rising inflation has made it necessary for every individual to buy health insurance.
Offering tax incentives in this area will help promote health insurance.
4) The service tax charged to insurers has been increased to 12% from the existing 10%. The rate for life insurance policies where the entire premium is not towards the cover has been increased to 3% for the first year and maintained at 1.5% for subsequent years. At the same time, mutual funds are exempt from such tax. Overall, the change in tax has rendered life insurance at a disadvantage vis-a-vis MFs, PPFs, NPS, etc. Revisiting these changes will provide the necessary impetus to help attract funds into long-term savings.
5) Armed with an absolute majority, the new government is expected to address the long-pending Insurance Bill, which looks to raise FDI cap for the sector from 26% to 49%. It would encourage long-term inflows that will help the sector grow as well as provide the government with access to funds to aid infrastructure growth.
Moreover, the industry has seen negative job creation, with the number of agents and employees on the wane.
We also expect clarity to emerge on the road map for DTC and GST. That would help the industry plan better for the new regulations.
The writer is MD & CEO, HDFC Life