Budget 2019: FM Nirmala Sitharaman should focus on uniform tax structure for retirement products

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Updated: June 21, 2019 10:55:42 AM

Budget 2019 India: The need of the hour is to establish parity in retirement products and NPS by including all retirement products under Section 80CCC, and exempt annuities from income tax.

budget 2019, india budget 2019Budget 2019: In order to fuel domestic growth and infuse financial protection into the country’s massive insurable population, the time is now right for the Budget to address several key initiatives, benefits and incentives such as those listed below.

Union Budget 2019 India: WITH a clear mandate, the newly elected government managed to restore investor sentiment and corporate confidence, almost right off the bat. With political uncertainty out of the picture now, industries are bracing themselves for positive reforms ahead of the Union Budget for the current financial year, which is to be presented in the Lok Sabha on July 5, 2019.

With the finance ministry having kicked off initial meetings to discuss key issues and priorities in this regard, there are some expectations that the frontrunners of the life insurance industry would eagerly be waiting for. In order to fuel domestic growth and infuse financial protection into the country’s massive insurable population, the time is now right for the Budget 2019 to address several key initiatives, benefits and incentives such as those listed below.

Ensure wider financial protection

The Indian life insurance industry is relatively under-penetrated. In order to align with its increasingly inclusive mandate of ensuring protection for all, it would be worthwhile to begin with a 12% GST tag for all life insurance products, (including term and others) along with input tax credit. For a large majority of Indians, protection is still not a pull product. It is therefore important to announce incentives that render a stronger attraction towards higher protection cover.

Scale up tax exemption limits under Section 80C

In order to drive greater life insurance penetration, an income tax incentive will help drive a behaviour change towards disciplined savings. The upcoming Budget needs to consider increasing the current limit of Rs 1.5 lakh to the tune of Rs 2.5 lakh to give a good push to insurance buying. An even better solution to heighten interest in the overall category would be creating a separate category within Section 80C for long-term savings and protection instruments.

Focus on incentivising retirement planning

One of the primary concerns for the Union Budget would be to turn the lens on initiating measures that encourage retirement planning. In India, with increase in average life expectancy, the population above 60 years is also rising constantly. By the year 2030, an expected 12.5% of the total Indian population will be above 60 years. Where on one hand life expectancy continues to grow at a steady pace, on the other hand our level of social security continues to deteriorate.

The need of the hour is to incentivise this agenda by establishing parity in retirement products and National Pension Scheme (NPS) by including all retirement products under Section 80CCC. Additionally, the finance ministry should also contemplate an increment of the tax exemption limit in this category from current Rs 50,000 to Rs 1 lakh and absolutely exempting annuities from income tax. This would not only help ensure a greater stream of defined income in retirement years but also enable financial independence for retirees in their golden years.

While the government has been extremely positive towards structural growth and potential grey swan events in the larger financial sector, a reformative push through the life insurance sector would constructively impact the real economy.

(The writer is MD & CEO, Max Life Insurance)

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