The Indian insurance industry has been having a good run over the last few years. A host of factors have come together to give a fillip to the insurance sector in India and drive insurance penetration further. Firstly, the demographics are changing in favour of the industry. An increasingly younger and more aware population is driving the demand for insurance products. Secondly, the policy and regulatory push is further boosting the sector.
The launch of mass insurance plans like PMJSBY (Pradhan Mantri Jeevan Suraksha Bima Yojana), PMSBY (Pradhan Mantri Suraksha Bima Yojana) and PMFBY (Pradhan Mantri Fasal Bima Yojana) and regulatory measures imposing stringent fines on those without motor insurance are some of the many initiatives taken by the government to encourage an investment in insurance. However, there is an imminent need to bridge the protection gap and incentivise individuals to invest in insurance. Some of these can be addressed in Budget 2020.
The budget should incentivise the end user to buy insurance through tax sops.
Increase the limit for 80C: Under section 80C of the Income Tax Act, 1961, investment in certain instruments is allowed as a deduction while calculating net taxable income. This helps individual tax payers reduce their overall tax liability. The total deduction available under this section is Rs 1,50,000. While the premium paid on an insurance policy is considered as an allowable deduction under section 80C, there are also various other investments like ELSS, PPF, NSC SSC, SSSC etc. that fall within the purview of this section. Hence, policyholders don't get enough benefit.
In order to enable customers to see life insurance beyond a tax saving tool and invest in it to fulfil their long term financial goals, the government should either consider a separate deduction section or enhance the limit under Section 80C of the Income Tax Act, 1961, to Rs 300,000, since the current limit of Rs 150,000 as this limit is too low to cater to all the contributions it covers.
Changes to the 80D cap: In addition to the deductions allowed under section 80C, the government allows a deduction for health insurance premiums as well. Currently, an individual can claim a deduction of up to Rs 25,000 for the health insurance of self, spouse, and dependent children. An additional deduction of Rs 25,000 is available on the health insurance of parents aged upto 60 years.
If the parents are above 60 years of age, then the total deduction available is Rs 50,000. The FM should consider enhancing these limits as it can potentially provide relief to those who are struggling to meet healthcare costs. The government should increase the tax rebate cap for self from Rs 25,000 to Rs 50,000 and also increase the limit for aged parents from Rs 50,000 to Rs 75,000.
Reduction in GST: The FM can also consider reducing GST from the existing 18 per cent to 10 per cent, on all personal lines of products. In a more sweeping gesture, the government can also consider making all personal lines of products like health, accidents and home, exempt from GST. Insurance is an essential requirement for households as it plays the important roles of protection and financial planning. Rationalising GST on insurance products can make insurance more affordable thereby, driving its penetration. It is important to note that insurance as a product offers social benefits and should thus not be subject to 18 per cent GST.
Create a separate/higher deduction for first time buyers and women buyers: Insurance penetration in the country will only improve if every member of the household, and not just the men, buy an insurance policy. As per a report from the Insurance Regulatory and Development Authority of India (IRDAI), 32 per cent of policyholders are women. In an attempt to encourage women to insure their lives and savings, the government can provide extra tax benefits to women policy holders. Similarly, the government can also incentivise those buyers that are sitting on the fringe by providing extra tax benefits to first time buyers.
Tax SOPs for insurtechs: The insurance landscape in India is changing. A part of this change has seen the germination of insurtechs – firms that are leveraging technology to add value in the insurance sector and making it more accessible to the individual on the street. Tax SOPs to insurtechs can potentially help these companies scale up and add more value to the sector.
The stage has already been set by the government for increased insurance penetration in the country. The government can go a step further in the Union Budget to incentivise the end users for enhanced insurance awareness and penetration.
By Dhirendra Mahyavanshi, Co-Founder-Turtlemint