Tax-free pension plans to higher Section 80D limit: 7 key expectations of Insurance Sector from Budget 2023 | The Financial Express

Tax-free pension plans to higher Section 80D limit: 7 key expectations of Insurance Sector from Budget 2023

Budget 2023: Tax-free pension/annuity, higher Section 80D limit, tax benefit on term insurance and more – Here’s what Insurance Sector is expecting from the Budget 2023

budget 2023 insurance sector expectations
Check top expectations of Insurance Sector from Budget 2023. Representational image

By Parimal Heda

2022 was an eventful year for the insurance sector in India. Owing to the revolutionary changes by the government, IRDAI, and the efforts of the industry players, there has been a positive change in consumer behaviour and attitude towards the insurance sector. The sector has witnessed an uptick in insurance purchases, especially in the health and motor verticals, contributing to the growth of the industry.

Also Read: Budget 2023 Income Tax Changes Live Updates

The insurance market in India is also seeing an increased capital infusion and demand due to third-party funding. The demand for insurance is poised to increase significantly on the back of the exponential growth of technology-enabled transparency, which has been a game-changer for the insurance sector. Cloud computing, data and analytics, automation of claims via telematics technology, and applied AI are some of the key technological disruptions that are bound to transform the insurance industry in the coming years.

In a bid to further boost the sector, the industry is expecting some announcements from the Union Budget 2023 that will positively impact the sector and policyholders. A reduction in the GST rate for health insurance from the current 18 percent to 5 percent will have a far-reaching impact on the penetration of health insurance, which has been a key focus area of the Government of India and the IRDAI.

From a policyholder’s point of view, the following expectations from the Union Budget announcement can help in deeper penetration:

Increase in limit under Section 80C

An individual is eligible for a claim deduction of up to INR 1.5 lakh under Section 80C. This deduction limit was last hiked in 2014 –15 from INR 1 lakh to INR 1.5 lakh. Considering the current insurance penetration rate in India, a different bucket for life insurance policies or an increased limit in addition to the Section 80C limit would go a long way in boosting insurance penetration in the country.

Also Read: Budget 2023 expectations Latest Updates

Increase in tax exemption under Section 80D

According to the Niti Aayog report published in October 2021, at least 30 percent of India’s population has no health insurance. Further, around 7 percent of the population is pushed into poverty every year due to healthcare costs incurred from their savings. The premium paid towards health insurance to cover individual members is allowed deduction ranging from INR 25,000 to INR 50,000 under Section 80D. In view of rising inflation and medical costs, the budget could increase this limit from INR 50,000 to INR 1 lakh to generate interest among people to get adequate insurance coverage.


Currently, a pension or annuity payment is subject to tax and is taxed at the prevalent slab rate. Tax-free pension plans are required to allow pension schemes to penetrate more deeply into Indian societies and especially given that post-retirement, the retirees may also have to incur high medical costs. By making the pension payout tax-free, they would get EEE status (exempt-exempt-exempt) in line with the Public Provident Fund (PPF).

Additionally, simplifying deductions available to pension plans could also be beneficial for first-time policyholders. Pension or annuity plans (Section 80CCC) by life insurance companies do not have any separate limit as they are covered under the broad Section 80C limit of INR 1.5 lakh. However, under Section 80 CCD (1B), a separate deduction is available for contributions to the National Pension Scheme (NPS) of up to INR 50,000. If the government makes deductions under Section 80CCD available for the pension or annuity plans launched by life insurance companies, then it could result in better pension penetration.

Travel Insurance

Though there has been a considerable increase in awareness around travel insurance post-COVID, the budget can include premiums paid towards travel insurance as exempt under the Leave Travel Allowance exemption, to encourage more people to choose travel insurance.

Also Read: What Resident Taxpayers Expect from Budget

Incentives for third-party motor insurance

Despite the mandatory third-party motor insurance, more than 50 percent of the vehicles in India remain uninsured. The insurance costs, negligence, or the mere belief that insurance is not required could have led to this lower vehicle insurance. The government could give a boost to such owners by incentivizing them with a one-time tax deduction benefit for up to the amount of premium paid for the renewal of their insurance policy.

Exemption on vehicle insurance premiums

Though third-party motor insurance is mandatory; it doesn’t offer any coverage for damage to the vehicle, resulting in under-coverage. Furthermore, the costs of owning a vehicle have significantly increased due to high inflation and new norms. In the upcoming Union Budget, the government could look at providing an exemption on premiums paid towards Motor Own Damage insurance under Section 80C. This will incentivize people to buy OD (own damage) insurance and the deduction will also bring down the overall price of the vehicle.

Tax benefits for term insurance

Another positive move would be a separate tax exemption limit for term insurance. According to Swiss Re Institute estimates, the average mortality protection gap in India is 91 percent, which means that the financial resources available to support family members’ livelihoods after paying off outstanding debts in the event of the breadwinner’s premature death were less than 9 percent of the total protection required. Any special tax benefits for term insurance plans will aid in filling this mortality protection gap.

The IRDAI has also launched reforms to achieve its mission of “Insurance for all by 2047.” There is a huge protection gap in the country and people need to be incentivized to not only have insurance but adequate insurance. An increase in private medical insurance coverage will also reduce the burden on government finances relating to the Pradhan Mantri Jan Arogya Yojana (PMJAY), and tax concessions will simultaneously help policyholders immensely to get better insurance coverage in health and life insurance.

(The author is Chief investment officer at Digit Insurance and the views expressed are his own.)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 30-01-2023 at 11:08 IST