Budget 2024: From GST reduction to expansion of Section 80 C, here’s what the insurance sector is expecting

Thinking ahead of section 80 C

Section 80 C provides tax benefits of up to ₹1.5 lakh to taxpayers for investing in various specific instruments and expenses like PPF, life insurance, ELSS, National Savings Certificate, etc. Experts believe there is an urgent need for a different tax exemption category for term insurance.

“We have been asking the government to introduce a separate tax deduction limit for life insurance for the last 5 to 6 years but nothing has happened. The reason is that the current Section 80 C is too cluttered where a person can claim deductions up to ₹1.5 lakh for PPF, Sukanya Samriddhi Scheme, ELSS, tax saving fixed deposits, school fees, principal sum of a home loan, including life insurance,” Industry expert said.

“The maximum deduction limit of ₹1,50,000 under Section 80 C gets exhausted owing to other allowable expenses like PPF, loans, etc. It’s time we declared a dedicated exemption category just for term insurance to fill this gap. This will also incentivise taxpayers to opt for a term plan with higher coverage,” noted an Industry expert.

Tax-free pension schemes

Retirement planning is an essential part of securing one’s future and requires early investment. Reduction of tax on pension and annuity products would encourage more people to start investing for their retirement.

The Industry expert believes that the tax imposed on pension and annuity products should be similar to that imposed on the National Pension Scheme (NPS). The measure would make long-term financial planning more lucrative for people.

According to him, “The existing system imposes a tax on full annuity income including both principal and interest. To promote the wider adoption of pension products and ensure parity with other investment avenues, we recommend considering a tax-free status for annuity income derived from these pension products. This would serve as an incentive for individuals to secure their retirement and also align pension products with prevailing tax norms.”

Highlighting the need for a level playing field for insurance companies, he said, “The current ₹50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to pension and annuity plans of insurance companies to provide a more level playing field.”

Agreeing with the opinion of insurance industry experts, of Aegon Life Insurance noted, “Pension policies, like the NPS, provide a steady income in retirement. It’s important to lessen the tax load for people receiving pensions from the National Pension System (NPS), as the retirement fund gap is expected to increase a lot. The current ₹50,000 tax exemption for NPS under Section 80CCD(1B) should also apply to pension and annuity plans to encourage more people to use them.”

Lowering GST on insurance products

Industry experts advocated the reduction of Goods and Services Tax (GST) imposed on certain types of insurance products to increase their reach for more citizens.

According to him, “a GST rate of 18%” needs to be reconsidered so that the pricing benefit of insurance products reaches the end consumer encouraging wider investment in life insurance products.

He also expressed the need to increase the maximum deduction limit for self, spouse, and dependent children to ₹50,000 and senior citizen parents to ₹1,00,000. In addition to this, he underlined the need to extend tax exemptions to “Health Savings Accounts to give people more in-hand money to plan for rising healthcare expenses.”

Another Industry expert recommended the implementation of a “Zero rating” on certain essential policies like the Pradhan Mantri Jeevan Jyoti Bima Yojana, smaller insurance policies covering up to ₹2 lahks, and annuity products for National Pension Scheme subscribers. He also favoured the reduction of GST on term life insurance for wider accessibility of insurance products among people.

Source from: https://www.livemint.com/budget/expectations/budget-2024-from-gst-reduction-to-expansion-of-section-80-c-heres-what-the-insurance-sector-is-expecting-11704400341525.html