Insurers are lobbying for more tax incentives from the government ahead of the delivery of the 2024 Budget, scheduled to be read on 23 July 2024. The insurers want to increase the appeal and affordability of insurance offerings through tax incentives.
The insurers are seeking tax cuts on annuities and a reduction in the GST rates applied to their products. The industry is optimistic that there will be a revision of the tax framework to reintroduce tax exemptions for life insurance products, according to Policy Circle, a digital platform that offers in-depth coverage of public policy issues in governance, environment, and society.
Policy Circle notes that tax benefits exist for both health and life insurance premiums, but they are capped and often complex to navigate. Naturally, many with limited resources are dissuaded from prioritising insurance. Millions of citizens remain vulnerable to illness, disability, or unforeseen events in the absence of insurance. Current tax structures are often to blame.
Government initiatives like the PM Jeevan Jyoti Bima Yojana ( a life insurance scheme) and PM Suraksha Bima Yojana (an accident insurance scheme) offer some financial protection, but their scope is limited. The PM Jan Arogya Yojana provides health insurance coverage of up to INR500,000 per family, but eligibility is restricted to those below a certain income level.
The way forward
To resolve this, significantly increasing the tax deductions allowed for premiums paid on health and life insurance may be a way forward, says Policy Circle. Simplifying the tax benefit structure for insurance will make it easier for all, regardless of their tax bracket or financial literacy, to understand and avail of these benefits.
By encouraging insurance participation through tax cuts, the government does not simply lessen its social security burden; it empowers citizens to take charge of their own well-being. This creates a more responsible and financially secure society, ultimately benefiting the nation as a whole.
At present, health insurance attracts GST rates of 18%. A reduction of the same to 5% will make these products more affordable, leading to greater uptake.