Union Budget 2025 is expected to play an important role in shaping India’s insurance sector when the government has set a goal of ‘Insurance for all’ by 2047.
To achieve this target, India’s insurance sector is expecting some key announcements in the Budget such as tax incentives for policyholders, reduction of goods and services tax (GST), and implementation of mandatory basic term life insurance coverage for formal employment.
Finance Minister Nirmala Sitharaman will present the Union Budget 2025 on February 1.
Tax incentives for policyholders
Most insurance firms expect an increase in tax deduction limits for policyholders under section 80C for life insurance premiums and tax incentives for policyholders under section 80D.
“Increasing tax deduction limits under section 80C for life insurance premiums or introducing a separate limit exclusively for term insurance and pension policies can significantly boost life insurance penetration,” an industry expert said.
Further, Another industry expert, expects tax incentives for policyholders under section 80D.
Currently, under section 80C, policyholders can avail tax exemption of up to Rs 1.50 lakh, and under section 80D, can avail tax exemption between Rs 25,000 and Rs 50,000.
Reduction in GST on premiums
Industry experts expect a cut in the GST rate on health insurance premiums in the Union Budget 2025.
“Initiatives to reduce GST on health insurance premiums while retaining the benefit of input tax credit for the industry,” he said.
Currently, an 18 percent GST is levied on premiums paid for life and health insurance policies.
Last month, the 55th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman in Jaisalmer, Rajasthan, had deferred the potential reduction in GST on premiums.
Even though the call on GST cut will be taken by the GST Council, experts believe that some announcement or clarity will be there in the upcoming Budget.
The Group of Ministers (GoM) requires more time to finalise inputs from insurance regulators regarding a potential reduction in GST on premiums.
“We have basically just made a humble submission that whatever rate they decide should be matched with a similar level input tax credit. That’s the way in which we can then pass on any benefits to the customer. If that is not the case, then it may not really result in any benefit to the customer,” said by the chief financial officer and executive director, HDFC Life Insurance.
Mandatory basic term life insurance coverage for formal employment
To increase insurance penetration and ensure financial security for dependents, the insurance sector is expecting mandatory basic term life insurance.
“Additionally, implementing mandatory basic term life insurance coverage for formal employment, akin to the Employees’ Provident Fund (EPF), will ensure financial security for dependents in the case of untimely demise,” said from ACKO Life Insurance.
