While the ongoing coronavirus pandemic has devastated lives and livelihoods, one positive that has emerged out of this situation is the importance of insurance as financial protection against the uncertainties of life.
Consumers are now more aware of the role that insurance plays in financially safeguarding themselves and their families, but there is still a long way to go.
From the insurance sector’s perspective, we have a few vital recommendations that we hope will be addressed by the Finance Minister in the forthcoming Union Budget on February 01.
- We would recommend a separate deduction section for insurance policies or an increase in the limit under Section 80C of the Income Tax Act. Currently, Section 80C provides for tax deduction up to Rs 1,50,000 on a number of investment options including PPF, ELSS, NSC, NPS and insurance policies amongst others, which makes this section very cluttered and crowded. Providing a separate deduction section for insurance would encourage customers to consider insurance as an integral part of their financial plan and not just a tax-saving tool.
- Tax laws could be aligned to the regulatory minimum of 7 times the cover for individuals above the age of 45 years.
- We also feel that the current limit of health premium (including preventive medical check-up costs) is low and needs to be increased.
- Another move in the right direction would be to make annuities tax-free. Doing so would bring about parity between this segment and the National Pension Scheme (NPS), which is allowed a further tax exemption limit of Rs 50,000 over and above the Rs. 1.5 lakh under Section 80C. It would also help to drive demand for pension products and make this segment more attractive to customers.
- Since life insurance provides crucial financial protection and support against life’s uncertainties, we would also recommend a lowering of the applicable GST on life insurance from 18% to 12% or even lower, is possible. Insurance penetration in our country is low and reducing the GST rate would be a step towards increasing demand.
- Another move that would benefit the sector greatly is an increase in FDI from 49% to 74%, in line with AMCs which are at 100% FDI and banking which is at 74% FDI. Insurance is a capital-intensive business and the Indian partners may be reluctant to infuse the capital required. With this pandemic, some companies might also need capital infusion to conserve solvency nargins. Finally, it gives the foreign promoter an opportunity to buy out its cash-strapped Indian partners.
- Lastly, 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.
(Vighnesh Shahane is MD & CEO of Ageas Federal Life Insurance. Views are his own)
