By Ankur Nijhawan
As the countdown for the Union Budget begins, industry watchers are busy reading the tea leaves and looking forward to the key financial policy calls the FM could announce on February 1. The Insurance sector is no exception to the norm. It is awaiting the tabling of the budget and hoping its budget expectations are met. In India, policyholders are currently eligible for many tax benefits on insurance premiums. From an industry standpoint, these are our major expectations from the upcoming budget.
GST and healthcare
A high GST rate of 18% on health insurance coverage adds to the burden. We hope the FM reduces the GST rate on health insurance and life insurance to the 5% basket. It will help create more interest in insurance and ensure that more citizens have a safety blanket and families are saved from financial ruin, in case of emergencies. The government could consider increasing the maximum deduction for tax benefits from health insurance premiums from Rs 50,000 to Rs 1 lakh with the deduction of health insurance premiums under section 80D of the IT act.
Home insurance and taxes
We also hope the policy is tweaked to allow premiums paid for home insurance against the risk of disasters offered tax deduction. This will be helpful for homeowners and offer protection against catastrophic events with insurance coverage. We hope that household insurance is made tax-free to ensure that the concept gets more traction in India.
Making life easy for pensioners
As India ages, and more people look at retirement and pension funds for meeting their daily expenses, pension proceeds can be given tax-free status for consumers. This will not only help increase pension funds penetration in the country, but it will also offer a good security net for the consumers. We hope the FM takes steps to make the proceeds of the pension/annuity tax-free.
Clarity on Life insurance
Moreover, insurance firms will look for more clarity on Section 80C of the Income Tax Act norms cluttered with several investment options such as life insurance premium, PPF, ELSS, NSC, NPS, and principal on the home loan. In the budget, the government could either create a new category for insurance policies or increase the deduction limits from Rs. 1.5 lakh to Rs. 2 lakh. We also hope the GST cover is reduced to 5% for coverage below Rs 5 lakh.
Life insurance is a popular tax-saving instrument. It loses out because of the crowd of options under Section 80C. A separate section will help make life insurance more popular, insure more citizens and ensure sufficient coverage. The government can introduce separate tax deduction limits for life insurance premiums to help the sector grow. We also believe raising the TDS exemption limit on the insurance commission (under section 194 D of the Income Tax Act) from Rs. 15,000 will be helpful and incentivise insurance agents.
Taxation of foreign reinsurance branches
Foreign reinsurance branches (FRBs) are taxed at a high rate of 43.6% (inclusive of surcharges and cess). Meanwhile, domestic companies in the reinsurance business pay taxes in the 22% to 30% range. We believe bringing FRBs on par with domestic companies will make reinsurance solutions competitive. It will not impact overall tax collections as larger business volumes with FRBs will drive growth in tax collection. At benchmarked rates, tax collection in absolute terms will be in line with lower incomes taxed at higher rates.
We hope the FM rationalises the tax rate for FRBs and brings it on par with the domestic companies, which sits at around 25% plus surcharge and applicable cess. This has been done globally and will help in the growth of the broader sector.
Introduction of Captive Insurance
In India, captive insurance remains a novel concept. A captive is a wholly-owned subsidiary created to offer risk mitigation services for the parent company and/or its allied entities. It is created to mitigate the financial risks of parent companies. Captives are used by governments, large corporates, and cooperatives as cover for event and aggregation risk.
The introduction of this concept formally in the Insurance Act by IRDAI is a massive development that can potentially transform the sector. We hope the FM in the budget takes the first steps to bring captive insurance into the insurance ambit to ensure risk mitigation and growth of the ecosystem. These steps will help fulfill the government’s dream of driving the country to growth and prosperity.
(Ankur Nijhawan, CEO – Axa France Vie India Reinsurance Branch. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)