Budget 2023: Section 80C limit change to tax-free pension/annuity - what insurers are expecting | The Financial Express

Budget 2023: Section 80C limit change to tax-free pension/annuity – what insurers are expecting

Budget 2023 expectations: Here are the top expectations of insurance industry experts

budget 2023
What insurance industry is expecting from Budget 2023. Representational image

Budget 2023 expectations: With Budget 2023 just a few weeks away, the insurance industry is expecting big announcements in favour of policyholders and the sector.

“The Union Budget is an opportunity to introduce new reforms for the betterment of the citizens and the nation at large. As the life insurance sector, our paramount interest has always been to insure more citizens and ensure they have the apt coverage. Towards this, our collective initiatives will be augmented if the government may introduce a separate tax deduction limit exclusively for life insurance premiums paid,” says Tarun Chugh, MD & CEO, Bajaj Allianz Life.

“Furthermore, we would also request that the government brings life insurance Annuity or Pension products at par with NPS, especially from a tax deduction point of view. This, we believe, will help citizens plan for regular income during their retired years, in an effective manner,” he adds.

Here’s a look at some top expectations of the insurance industry:

GST reduction

In spite of pandemic, the health insurance penetration in our country is very low. Due to such a low coverage, the cost of insurance becomes high. The insurance industry expects that in order to bring down its cost, GST rate should be reduced to 5% from 18%.

Additionally, 5% GST is charged on room rents exceeding Rs 5,000 per day by clinical establishments. Insurance companies, while settling health insurance claims, are required to include such GST in the settlement amount. A clarification is required as to whether such GST is available as Input Tax Credit to insurance companies.

“Incentives like a GST exemption or a reduced GST slab can further help in meeting the needs of consumers. Pension/annuity proceeds should be made tax-free in the hands of policyholders, or a deduction for the principal component should be allowed. Further, an aggregate deduction of up to Rs 1.75 lakh, for the premiums paid for life and health can be introduced to nurture the eco-system of insurers, insurtechs and consumers,” says Satishwar B, MD and CEO, Aegon Life Insurance.

Increase in Deduction

“Currently, health insurance premium paid to cover individual members are allowed a deduction ranging from Rs 25000 to Rs 50000 It is requested that in view of the inflation, the current limit of maximum of Rs. 50000 may be increased to Rs 1,00,000 in order to induce people to take adequate cover of insurance,” says Rakesh Jain, CEO, Reliance General Insurance.

“Further, deduction of health insurance premium u/s 80D should also be allowed under the new tax regime,” he adds.

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Reduced tax rate

Insurance industry experts say that the benefit of a reduced tax rate of 10% on long-term capital gain (LTCG) above Rs 1 lakh should also be extended to the Insurance Sector.

Tax incentive on home insurance

Premium paid for Home Insurance against the risk of various disasters should be given as a tax incentive by way of deduction under Chapter VI A to promote Home Insurance, says Jain.

“The above measures will give relief to the existing policyholders and encourage our uninsured citizens to protect themselves with an insurance. Especially for the health insurance sector, it will help improve propensity of Indian population to avail timely healthcare thereby paving a way for a healthier country that is vital to our nation’s long-term prosperity. Implementation of these tax benefits will also increase affordability of insurance products and augment insurance penetration in the country, giving a much-needed boost to the insurance sector,” says Jain.

Tax-free pension

Vighnesh Shahane, MD and CEO of Ageas Federal Life Insurance says proceeds of pension should be made tax-free in the hands of customers.

“To increase the penetration of pension and to make India a pension society, especially since we don’t have any social security cover, our request is to make pensions tax-free in the hands of the customer because the pension premium is already paid through taxable income. So, we recommend that the proceeds of the pension/annuity should be made tax-free in the hands of the customer or to allow deduction for the principal component,” says Shahane.

“Alternatively, if we could have a separate bucket for pensions in the range of Rs. 50,000-75,000/- that would help to level the playing field with NPS,” he adds.

Also Read: Even vacant property is taxed as let out. Will Budget 2023 change this for homebuyers?

Section 80C Limit Change

Shahane says that Section 80C of the Income Tax Act is currently cluttered with several investment options such as life insurance premium, PPF, ELSS, NSC, NPS, principal on home loan amongst others. If you are a salaried employee, most of it goes into EPF and PF. “So, we would recommend a separate bucket for life insurance policies or an increase in the limit from Rs. 1.5 lakh to Rs. 2-2.5 lakh. At least a separate section for Term policies would be helpful given the huge protection gap in the country.”

Change in ULIP taxation

Insurance industry experts say that ULIP taxation should be simplified. As per a budget announcement a couple of years ago, for ULIPs with an aggregated premium amount of Rs. 2.5 lakh p.a or more, the maturity amount, which was earlier tax-free under Section 10(10D) of the Income Tax Act, became taxable. This should be reversed as it disincentivises big ticket investments.

TDS on insurance premium

Raising the TDS exemption limit on insurance commission (under section 194 D of the Income Tax Act) from the current level of Rs. 15,000/- would provide a greater impetus to insurance agents, say experts.

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First published on: 03-01-2023 at 14:33 IST