Lower the applicable GST rate for Insurance premiums: Digit Insurance

By Parimal Heda 

"Degrowth in auto sector and an overall slowdown in economy has resulted in slowdown in non-life Insurance premiums as well. The finance minister could announce measures to stimulate the economy by addressing specific sectors. Some of the measures that the street is anticipating is a cut in Personal Income tax, GST rate cuts in the auto sector, increase in tax sops to boost housing sector etc. Such measures would revive consumer sentiments and bring back the domestic consumption story, resulting in higher sales in auto and other sectors. This would help the improve sales of non-life Insurance products.

Further, as long as the going is good, people don’t feel that there is a need for any Insurance protection. Purchasing any kind of Insurance is still looked at as a cost rather than a protection from adverse financial situation. This has resulted in lower penetration of Insurance, despite a lot of measures announced by the government as well as the regulator. 
To increase the penetration of non-life insurance, the government could look at offering more tax benefits, include more products under mandatory Insurance cover and roll out more mass Insurance schemes. Standardization of policy documents across various Insurance products like Health/ Home Insurance could help in better understanding of insurance products.

A major part of household savings goes into purchase of property. The dream of owning a house may just get washed away in a natural calamity. In recent times, we have witnessed quite a few natural calamities, resulting in property losses for the un-insured. Making home insurance mandatory at the time of purchase of the property or giving special rebate (similar to health Insurance) for Insurance of houses could incentivise people to buy Home Insurance. Additionally, the government could roll out a mass product scheme similar to its flagship programs like PMJSBY, PMFBY etc. for compulsory Home Insurance under affordable housing. 

The government may also revisit the Income tax deductions available under Section 80D for health Insurance and could revise the same upwards. Given the ever-increasing medical costs, the finance minister could announce a higher tax rebate under Section 80D from current INR 25000 to INR 50000 for self and for dependent parents (age above 60 yrs.) to INR 75000 from INR 50000. Also, the government could make health insurance mandatory for all employers in the un-organised sector as well. 

Further, currently the insurance premiums are taxed at a GST rate of 18% which increases the cost to purchase any non- life insurance. Given that the purchase of such a policy is not done for investment purpose, the government could either lower the applicable GST rate for Insurance premiums or could exempt it for policies with a minimal cover or for policies issued under the flagship Insurance programs like PMFBY. While GST is not under the purview of the budget but the finance minister could subsidise the payment of GST under its flagship schemes like PMFBY or for mandatory Insurance products."

Parimal Heda - Chief Investment Officer - Digit Insurance.