Industry Leaders Advocate for Tax Reforms to Boost Coverage and Encourage Investments
In the aftermath of a pivotal year for India's insurance sector, characterized by the entry of new players, technological advancements, and shifting consumer dynamics, the focus now turns to fostering a competitive landscape. With the insurance penetration standing at a modest 4%, industry leaders are eagerly awaiting budget considerations to accelerate growth.
1. No Taxation for Annuity Plans: A Boon for Retirees and the Industry
The stark reality of inadequate retirement savings, with an anticipated $85 trillion gap by 2050, prompts a call for action. Industry leaders propose making annuity plans tax-exempt to incentivize investments in pension and annuity products, crucial for post-retirement income. Advocates emphasize extending the current ₹50,000 tax exemption for the National Pension System (NPS) to cover pension and annuity plans, aligning with the evolving needs of retirees.
2. Improving Tax Benefits to Increase Insurance Coverage
India grapples with insufficient insurance coverage, particularly evident in the aftermath of the primary breadwinner's demise. Proposed reforms suggest separating tax breaks for life-threatening risks in life and health insurance payments. This includes distinct tax incentives for fixed-term insurance plans, aiming to bridge the gap in death risk coverage and enhance social security.
3. Complete Deduction for Life Insurance Premiums
To further incentivize the purchase of life insurance, industry leaders propose allowing individuals to deduct the entire premium amount from taxable income. Suggesting a revision to Section 56, advocates argue that this would provide a comprehensive tax benefit, making insurance more financially attractive.
4. GST Reforms for Wider Reach
Addressing the low penetration of health insurance in the country, experts propose lowering the GST on term life insurance and implementing a 'Zero rating' for essential policies. The emphasis is on reducing the existing 18% GST rate on retail health insurance products, aiming to enhance affordability, increase penetration, and expand accessibility, especially in tier-II, tier-III cities, and rural markets.
5. Urgent Need for Health Insurance Affordability
Health insurance is recognized as a fundamental necessity, essential for mitigating escalating healthcare costs. Despite being crucial, health insurance penetration remains low, with more than half of healthcare expenses paid out of pocket. Industry experts call for a reduction in the existing 18% GST rate on retail health insurance products to enhance affordability and promote accessibility, particularly in underserved regions.
6. Plea for a Clearer Tax Framework
Industry veterans express frustration over the cluttered nature of Section 80C, advocating for a separate tax deduction limit for life insurance. The demand, lingering for five to six years, seeks to streamline deductions and provide clarity for life insurance among various investment options.
7. Equal Treatment for Pensions and Annuity Plans
To create a more level playing field, experts call for making pensions tax-free for annuitants, extending the existing ₹50,000 tax exemption for the National Pension Scheme to encompass pension and annuity plans from insurance companies.
In anticipation of the upcoming budget, these proposals signal the industry's commitment to addressing gaps in retirement planning, insurance coverage, and healthcare accessibility, with the potential to reshape the landscape for both consumers and insurers.
CAclubindia
