The insurance industry is seeking a hike in tax exemption for specific policies brought by customers. This, said insurers, would help boost sales and help make the product an attractive proposition.
Specifically, life insurers are seeking a separate tax exemption limit for pension products and term products. Right now, only the National Pension System (NPS) has this provision.
General insurance companies are seeking tax incentives for policyholders buying property covers. No such tax exemption is available for non-life products except health insurance.
The Union Budget 2020 will be presented by Finance Minister Nirmala Sitharaman on February 1.
In an earlier interaction with Moneycontrol, Vibha Padalkar, MD and CEO, HDFC Life Insurance, had said that there should be incentives for the pension products sold by insurance companies in the budget.
"There could either be a separate carve out for the pension sector or a decision could be taken annuities. This will give a fillip to the average Indian," said Padalkar.
Pension products sold by insurance companies compete with NPS. The latter has better tax incentives as well as a separate Rs 50,000 exemption in income tax.
Apart from pension, another segment where life insurers are seeking tax incentives is term insurance. Protection or pure term plans which only pay out a claim on the death of the policyholder are the core of the life insurance industry.
For the past five years the industry has sought tax exemption separately for term plans, but this has not yet received a go-ahead from the finance ministry.
Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance, said that in a country with inadequate social security, protection offered by life insurance is inevitable; however, lack of its penetration is plaguing the industry.
"Introducing separate deduction of Rs 50,000 for first time life insurance buyers and an additional capping of Rs 50,000 for someone purchasing a pure protection (term) plan will put life insurance on fast track" he said.
Rao said that the government could also offer extra tax benefits to women policyholders as another important move would be to encourage females to insure their lives and savings.
The life insurance industry has also sought a removal of the tax provision that mandates sum insured to be ten times the annual premium for claiming exemption.
When it comes to general insurance, the industry is seeking a tax exemption for home insurance taken by individuals.
Home insurance covers the structure from damage due to incidents like fire, earthquake, landslides and floods.
Catastrophe has been pointed out as one of the topmost risks in India. Since there is no nation-wise coverage of catastrophic incidents, the industry is seeking addition of property insurance along with the existing health insurance segment as an exemption category.
The General Insurance Council (industry body of non-life insurers) has sought that under Section 80D there should be new set of tax exemptions sought for categories like personal accident and home insurance from catastrophic risks.
For home insurance there should be one separate exemption under Under 80D for personal insurance, personal accident and home insurance against catastrophic risks.
The industry as a whole has emphasised that the poor penetration of insurance which is less than 5 percent of the country's gross domestic product can be addressed by giving tax sops to the salaried professionals for buying policies.