Written by Ramkumar S and Bijal Khara:
The Union Budget 2023 was a bitter pill to swallow for the insurance sector in many ways, stemming from the fact that the increase in limits under Section 80C and 80D, separate deduction for home insurance, reconsideration of GST rates, and Tax-free status for pension/annuity not considered in budget. Instead, the Budget saw the introduction of a tax on the maturity amount of life insurance plans when the total initial premium exceeds Rs 5 lakh.
It also saw annual income from pension schemes being taxed at the marginal tax rate as per the new tax regulation. Further, Googly came up with a new personal tax regime in the form of no tax for taxpayers earning income up to Rs 7,00,000, devoid of any deduction under Section 80C, the Finance Minister said while announcing the new regime. Proposed to create a default arrangement. , This affected the ability of life insurance companies to sell policies as many taxpayers purchased insurance policies for the purpose of claiming tax benefits, but with no deductions in the new regime, investment insurance became a less attractive proposition. This was a surprise. However, this move by the Finance Ministry could be due to the trend of insurance policies post Covid-19, where the public felt that life and health insurance is not an option but a necessity.
Predicting what will happen in the insurance sector budget is like betting on the ‘Indian Derby’. If you ask market participants, they want the Finance Minister to focus on GST rates, especially as term insurance and health insurance plans attract 18 per cent, while endowment plans attract 4.5 per cent in the first year and 2.25 per cent thereafter. Is. From the second year onwards. While term insurance plans and health insurance are major products, their penetration in rural India is still minimal. This will potentially help the government achieve its ambition of ‘Insurance for all by 2047’.
The Insurance Regulatory and Development Authority of India (IRDAI) is actively working towards the development and implementation of the Indian Risk-Based Capital (Ind-RBC) framework for the Indian insurance industry as part of its developmental agenda. The Finance Ministry may bring in measures such as new capital requirement, which may be in line with the RBI in the context of AT1 bonds. With the new arrangement being the default regime with no deduction under Section 80C announced in last year’s budget, the Finance Minister is considering the loss of life and property from various natural disasters and the compensation to be paid by the state and central government. Will think again.
Talking about natural disasters, India also faces challenges due to earthquakes, floods, tropical cyclones, droughts and forest fires, however, the insurance protection against natural disasters is low.
The year 2023 witnessed several climate-related disasters with widespread damage to life and property and general insurers expected the government to bring in new measures such as tax exemption on premiums paid by the insured, especially with the advent of the Covid-19 pandemic. New infrastructure projects that are being built across the country.
In the health insurance sector, deductions for medical insurance premiums are expected to increase with the threat of a new variant of Covid. Additionally, to make the National Pension Scheme an attractive investment option, there is also a possibility of allowing tax exemption over the current 25 per cent limit and not taxing the income from annuity, which is currently taxable. While the insurance sector will be on the wish list, the finance minister will have to strike a balance for the health of the economy and not just one sector.
(Ramkumar S is executive director, Grant Thornton India, while Bijal Khara is associate director for financial services-risk, Grant Thornton India)
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