Budget 2021 is a crucial one for the government on the back of an unusual year. While, India has come out well in this crisis and the economy is beginning to display budding confidence, the government’s focus in this budget will be to bring the pandemic-impacted economy back on track.
The life insurance industry undertakes one of the important functions of providing social security to the people of India. The offerings provide life cover as well as options of long-term savings and capital formation with an objective of meeting milestone-based future financial needs.
The importance of a safety net, in the form of insurance cover gained immense prominence in 2020. This need for adequate life insurance will leapfrog in 2021. In view of the same, the life insurance industry as well as the policy holders are expecting that measures should be announced to encourage long-term savings and capital formation.
Secure retirement by bringing parity across all pension products: A large population use pension products offered by life insurers to have regular income post-retirement to lead a comfortable life. With increasing life expectancy, uncertainty in economy, turbulent markets and rampant job losses, pension solutions offered by life insurance companies can help individuals build secured, long-term savings for various life goals and retirement needs.
From a social security standpoint, both pension products offered by life insurers and the National Pension Scheme (NPS) serve the same cause of building corpus for retirement income. While, investment in NPS offers additional tax deductions of Rs 50,000 under Section 80CCD, a life insurer’s pension plans do not enjoy this benefit. Bringing parity between products offered by life insurers and the NPS will provide uniform treatment to all pension products and will offer simplicity to customers.
Reduction in GST on life insurance solutions: A majority of policyholders lack adequate insurance cover. Besides being underpenetrated, people are severely underinsured. Lowering the rate of GST, especially for term plans, will make life insurance solutions more cost-effective and will boost its adoption among customers. This rate cut will further encourage people to opt for adequate insurance and hedge various financial risks appropriately.
Introduction of separate deduction for first-time buyers and women: Individuals have realised the importance of having a life cover, especially in the past one year. This trend needs to be encouraged among the younger population so that they start early, plan for their finances and secure their future. A 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 the sector on fast track and bring more people under the ambit of life insurance. Another important move would be to encourage women to insure their lives and savings. Extra tax benefit for women policyholders will be a significant step towards the same.
Independent section for all insurance premiums: The pandemic has increased the need for having insurance cover, both life and health. Introduction of an independent section where deduction of up to Rs 5 lakh can be provided for life and health insurance premiums taken together will encourage more people to opt for insurance as per their personal needs. Alternatively, a rebate of 30 percent (restricted to Rs 150,000) of the insurance premium paid can be made available from tax payable on the total income. Moreover, these deduction/rebate for insurance premium should be available to all, irrespective of the taxation regime opted by taxpayers.
Re-introduction of Section 10(10D): These limits were existing before the amendment by the Finance Act 2012. The Section should be made available if sum assured is five times the annual premium. This will immensely benefit policyholders above 45 years of age or suffering from lifestyle-related diseases. This set is currently paying extra premium and are denied exemption benefit for maturity proceeds.
This year there is a need to announce changes keeping pace with the fast-changing external environment. These reforms, if implemented, will help people increase savings and secure themselves and their families adequately.
Besides, it will give a boost to the insurance sector.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
