The Union Budget 2017 has already provoked a slew of expectations and predictions among Indians. Last year’s budget came with tax reforms like cheaper house rates, an increase in the tax exemption on the rent paid, income tax benefits for small businesses and start-ups, and so on. This year, the biggest tax reform is going to be the implementation of the Goods and Service Tax (GST). GST is expected have a huge effect on the economic as well as on the (indirect) tax structure of the country. So, when we talk about our expectations from this year’s budget, the first thing that comes to our mind is the mention of GST and its possible outcomes. Here are our expectations from the Budget 2017.
Exempt Insurance from GST
The Finance Ministry is planning to bring three rates of taxes under GST, i.e Basic, Standard and Luxury. It has already declared a four-tier tax structure ( 5%, 12%, 18% and 28%) and most of the products and services are expected to come under the standard 12-18% tax slab. Currently, the service tax levied on insurance products is 14%. However, the inclusion of Krishi Kalyan cess (0.5%) and Swachh Bharat cess (0.5%) makes the total service tax applicable to 15%. We expect the government to exempt insurance from GST. The life insurance penetration in India stands abysmally low at around 3%-4% and a lot of push factor is required to increase the penetration levels. Therefore, it is imperative to exempt insurance products from any sort of taxation, so that the premium is more affordable for the larger section of masses.
Uniformly Promote Initiatives of Cashless Economy
In order to encourage cashless transactions, the government has recently incentivized insurance purchases through the online mode from public sector insurance companies by announcing 8% discount for life insurance and 10% discount for general insurance products. In the upcoming budget, we expect the government to promote the cashless economy idea, uniformly across all digital channels and extend discount to online distributors. This will in lieu benefit consumers at large to make better decisions. For example, if web aggregators offer the same discount, consumers will be able to get wider choice to compare different insurance products according to their specified requirements on a single platform.
Increase PMJJBY maturity age
Pradhan Mantra Jeevan Jyoti Bima Yojana (PPJJBY) is a pure life insurance (read: term insurance) cover introduced by the government as a social security scheme to help people from the lower income group prepare against an eventuality. The maximum maturity age under this scheme is 55 years, while term plans purchased from any private insurer offer life cover up to 80 years. The maturity age limit is very important for any insurance plan as it indicates that for how many years the insured can enjoy life coverage. We expect the government to increase the maturity age under PMJJBY to the minimum of 65 years in the upcoming budget. The life expectancy in India has gone up in the past two decades. The average life expectancy as per the recent study is 68.3 years. Moreover, the people from low income households end up working till late in their sunset years. It only makes sense to protect this vulnerable section of society with coverage that extends in to their twilight years.
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Detariffing the third party insurance premium
Third party motor insurance is the only cover for which the premium is decided by the regulator, whereas the pricing of all other products are decided by the insurers. We expect the government to de-tariff the third party premium in the coming budget. The insurers should be allowed to decide the premium they want to charge on the products they sell. This shall help insurers in bringing better, affordable and competitive products.
Increase in health insurance tax exemption limit for parents
The premium paid for health insurance of parents is allowed for deduction up to Rs 30,000 under section 80D. We expect the government to increase the limit to Rs 50,000. In India, skyrocketing medical inflation is a reality. Therefore, it is important for every individual to have a decent coverage health insurance plan which can cover the rising medical expenses for their parents. Nowadays, any decent cover for senior citizen couple of age 65 years and 60 years would cost around Rs. 50,000. The increase in the limit would encourage people to buy relevant health coverage for their parents.
(The author is Co-Founder and CEO, Policybazaar.com)