Budget 2020: Bring down GST on life insurance from 18% to 5%

By Prashant Tripathy

Today the country is looking for a growth oriented budget which could infuse larger positivity into the economy. This makes the Union Budget 2020 all the more critical. As Indian economy is staring at a lowest ever growth rate in over six years, the government will need to infuse greater optimism into the market that shall help the Indian economy tread on a growth trajectory. With the life insurance sector being one of the major contributors to the infrastructure sector, which is a critical component of economic growth, the government should focus on unlocking the growth potential of this sector. Therefore, our expectations from the Union Budget 2020 would be to implement measures and initiatives aimed at driving the consumers to embracing life insurance.

In line with the Government’s commitment towards bringing larger fiscal reforms for the common man, rationalizing personal taxation will be a critical recommendation. Consideration of an enhanced window for 80C deduction from the current Rs. 1.5 lacs to Rs. 3 lacs will help bring more liquidity to the hands of the common man.

To drive greater insurance penetration, the Union Government should help build a roadmap that includes GST incentivisation, advancing tax benefits to life insurance consumers and bring greater parity in terms of benefits between life insurance products and other investment avenues. The Union Budget must prioritize reducing the current Goods & Services Tax (GST) rates of 18% on life insurance term policies to 5% with intact Cenvat Credit, to further incentivize the adoption of what is the most fundamental, cost effective, and comprehensive form of financial protection. Also, a separate deduction of Rs. 1.5 lacs should be allowed in addition to deduction prescribed under section 80C in respect of contribution made by individuals towards Life Insurance plans.

The Union Budget should have a thorough look-through at the Premium to Sum Assured ratio for senior citizens and those with health issues, which must also be restructured effectively so that they are not excluded from claiming tax exemptions under the current Section 10(10D) of Income Tax Act. While senior citizens and people with health issues have to pay a higher premium, rationalizing the premium to sum assured ratio in sync with IRDAI regulations will help them claim more tax benefits.

Lastly, bringing about parity between pension/ annuity products in life insurance and National Pension Scheme should be a priority for the Budget. A separate deduction in respect of contribution made by an individual towards annuity/ pension plan similar to the additional deduction of Rs 50K in case of contribution towards NPS should be a priority. Also, a scope for an additional contribution towards pension/annuity products issued by Life insurance companies similar to the 10% contribution towards NPS scheme, should be an important consideration. This will allow for greater adoption of pension/retirement products and help create a larger on-par playing field for both the government and private players.

(Author is Managing Director & CEO of Max Life Insurance)