After the pandemic-fuelled awareness and need for health insurance as well as growing healthcare inflation, the current level of deduction allowed is inadequate, insurers feel (Representative Image)
A separate tax deduction provision for life insurance, tax waiver for annuity income, higher deductions for health insurance premiums, and tax benefits for home insurance – these are some of the expectations of insurance companies ahead of Budget 2023.
The Union Budget 2023 – less than two months away – will likely be the last full-year one before the country goes to the polls in 2024. Industry group's bodies as well as individuals have prepared their wish lists in the hope that Finance Minister Nirmala Sitharaman will reduce their tax burden.
Also Read | Higher tax deductions, more power to NPS: MF distributors’ wish list for Budget 2023
Higher 80C limit, separate deduction for life insurance
A pure term life cover is critical to your protection portfolio. Yet, many buy life insurance policies solely to save on taxes. For life insurers, this is a highly effective hook to get individuals to buy life cover. However, the scope to do so shrank as instruments eligible for deduction under section 80C increased. Section 80C allows tax breaks of up to Rs 1.5 lakh.
“The 80C bucket is cluttered now – there’s housing loan principal repaid, tax-saver fixed deposits, employees’ provident fund and so on, along with life insurance premium paid. Salaries have increased over the years and alongside, so have employees’ EPF contributions. This consumes a large part of the 80C limit,” explained Vighnesh Shahane, MD and CEO of Ageas Federal Life Insurance.
Alternatively, the Section 80C limit can be increased to Rs 2 lakh. Insurers said this would encourage more people to buy term insurance, which pays out the sum assured to dependents in case of the policyholder's death.
“This will help to increase investment in term insurance plans, which provide essential financial protection to the family in the event of the untimely death of the earning member,” said Prashant Tripathy, MD and CEO of Max Life Insurance.
According to experts, it is best not to buy life insurance merely to reduce your tax outgo but to protect your family, as part of your overall financial plan.
Annuity income, parity with NPS
Tax waiver for annuity – or pension- income is another demand that comes up during pre-budget discussions every year and insurers are hopeful the finance minister will take note of it this time round.
“To increase penetration of pension plans and make India a pensioned society, the principal component of pension income needs to be made tax-free in the hands of pensioners,” said Shahane.
Since the premiums for pension policies are already paid out of taxable income, only the interest component of annuity income ought to be taxed, insurers said.
“As in savings products like fixed deposits, only the accretion should be taxed in life insurance annuity/pension products, and not the principal repayment,” said Tripathy.
Parity with the National Pension System (NPS), which is also a retirement product, is another item on the wish list.
“An additional deduction of Rs 50,000, which is available for contribution to the National Pension System, should also be allowed for annuity and pension plans of life insurance companies,” he said.
Enhanced health premium deduction
Currently, individuals under the age of 60 can claim a deduction of up to Rs 25,000 under Section 80D for health insurance premiums paid. For senior citizens, this limit is Rs 50,000.
After the pandemic-fuelled awareness and need for health insurance as well as growing healthcare inflation, the current level of deduction allowed is inadequate, insurers said.
“In view of inflation, the current limit of maximum of Rs 50,000 (for senior citizens) should be increased to Rs 1 lakh. Further, deduction of health insurance premium under 80D should also be allowed under the new tax regime,” said Rakesh Jain, MD of Reliance General Insurance.
This enhancement is needed also because many families have now realised the importance of having a large enough cover in place.
“The current deduction is not enough, given the increase in premium and the fact that people are increasingly opting for higher sums insured, post-pandemic, due to increase in healthcare costs. From Rs 2-3 lakh earlier, many are buying covers of over Rs 5-10 lakh. The tax break should be increased to at least Rs 50,000 for all age groups,” said S Prakash, MD of Star Health and Allied Insurance.
The Section 80D deduction of up to Rs 50,000 can also be claimed by individuals who pay premiums on behalf of their parents.
Tax benefit for home insurance
Devastation caused by heavy rains and ensuing floods affected several parts of the country including the cities of Mumbai, Bengaluru and Chennai. The value of property damaged ran into thousands of crores of rupees, yet only a fraction of these losses were insured, according to insurers.
“Premium paid for home insurance against the risk of various disasters should be allowed as a tax incentive by way of deduction under Chapter VI-A to promote home insurance purchase,” said Jain.
