Budget 2019: Income tax benefits that FM Nirmala Sitharaman may announce on your insurance investments
Creating a separate tax exemption for term insurance - Currently, the maximum tax exemption via Section 80C of the Income Tax Act is Rs 1.5 lakh.
Budget 2019 is mere two days away and the insurance sector is expecting some announcement related to the income tax benefits from the finance minister Nirmala Sitharaman on July 5th. As per the industry insiders, Modi 2.0 Government has a feeling that the middle class should be encouraged to protect themselves and their families from future risks. This can be done by introducing tax deductions and a complete waiver of GST on essential insurance products. Some announcements in the life insurance sector are also expected for enhancing the insurance penetration in the country and for the role that it plays in the socio-economic development of the nation.
Rikhil Shah, Chief Financial Officer, SBI General Insurance: “With many government insurance programs aimed at the weaker sections of the society; we feel the middle class should be encouraged to protect themselves and their families from future risks. This can be done by introducing tax deductions and a complete waiver of GST on essential insurance products. As a general rule, the insurance industry looks to the annual budget to provide the road map as far as the economic direction of the country is concerned. It also needs to be noted that government schemes play a major part in driving growth in the insurance industry. From our perspective, we would in particular watch out for budget initiatives which would provide a boost to our industry. Measures designed to fuel infrastructure growth or increase automobile sales would have a direct impact on our business. Similarly, steps to improve insurance penetration such as tax exemption for health and home insurance premiums or increasing the threshold for deduction under section 80D would be of benefit to us. Today, the economy can progress by creating jobs and expanding the growth of middle and poor class as their consumption becomes the main growth driver. The budget may also bring measures to incentivise companies to create more jobs and reskill the workforce.”
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Vineet Arora, MD & CEO at Aegon Life said, "Life insurance sector has played a major role in the development of the country. There is a need for providing further impetus to life insurance companies for enhancing the insurance penetration in the country and for the role that it plays in the socio-economic development of the nation. There are a number of expectations from the upcoming Union Budget 2019." Vineet Arora listed out the two important announcements in budget 2019 that may fuel the life insurance sector as it is directly related to the Indian middle class. Those two major announcements are as follows:
1] Creating a separate tax exemption for term insurance: Currently, the maximum tax exemption via Section 80C of the Income Tax Act is Rs 1.5 lakh. The industry wants to encourage more people to buy term plans, which helps people insure their lives adequately at low premium costs. There should be a separate exemption limit for premiums paid towards term insurance.
2] 5 per cent GST on pure protection instruments: Be it the term plan, health insurance, critical illness plans or riders like term rider and critical illness rider, these should be exempted from GST. A significant reduction in premium will go a long way in building a secure nation where every household will have the ability to overcome financial stress caused by unforeseen events of life. Increased support through various government-led programs - While the government has taken concrete steps to promote life insurance by introducing a bouquet of plans in the past few years, it is important to review them against the changing socio-economic dynamics of the country. Also suggested, to bring pension policies sold by life insurers at par with the National Pension Scheme to ensure a level playing field. Also, recommend tax-free annuities upon maturity of a pension fund or policy as returns on them are lesser than tax-free bonds.