The last full Union Budget before the election year is seen with expectations by various constituencies, and economists many a time fear it to be populist one. Income tax benefit continues to be at the top of the mind for almost everyone who is in that taxable income range. Expectation won't be any different this time. Let me add to that list, requesting the finance minister to provide impetus to the national agenda of building a financially secure society.
1. Separate limit of tax exemption for life insurance - In an overcrowded 80C limit of Rs 1.5 Lakh, life insurance seems to be struggling for space. In our country where government provided social security is minimal, it is important to nudge people to protect the financial future of their loved ones, not just their beloved motorcycle or car. Many international markets have recognized the need to motivate people to invest in longer term financial instruments such as life insurance, separate from other more liquid/ short term instruments. A separate limit of Rs 50,000 per annum for life insurance will give an impetus to the industry that already serves nearly 36 crore consumers, perhaps the largest retail financial industry, apart from banks.
2. No GST on pure protection instruments - Be it the term plan, health insurance, critical illness plans or riders like term rider and critical illness rider, the Government of India should fully exempt these from GST. A significant reduction in premium will go a long way in creating a secure nation where every household will have the ability to overcome financial stress caused by unforeseen events of life.
3. Level playing for all pension schemes - Life insurance industry has been demanding a level playing field with NPS for the past few years. If the core purpose is to create a meaningful retirement corpus for a large majority of Indians, then why should an industry that has one of the deepest retail reach, be left out of the tax benefit which may nudge Indian households towards retirement planning. Life insurance pension plan should also be included in the separate limit of Rs. 50,000 currently offered under section 80CCD of NPS and 40% of maturity proceed should be tax exempt on lump sum withdrawal. In addition, annuities arising from such pension plans should also be tax exempted, as is the case with returns on tax free bonds, provident fund withdrawal etc.
4. Increased support through various government-led programs - While the government has taken concrete steps to promote life insurance by introducing a bouquet of plans such as Pradhan Mantri Jeevan Jyoti Bima Yojna, Pradhan Mantri Suraksha BimaYojna, Atal Pension Yojna (PMAPY) in the past few years, it is important to review its advantages and match them against the changing socio-economic dynamics of the country. The current protection cover of 2 lakhs being offered under these schemes might be enough only for a small portion of Indians, who are getting initiated into the formal financial sector.
5. Is the union budget all about taxation? Not at all. For the continued growth of life insurance industry, overall economic growth, benign inflation and more people joining the formal economy are also important. While it is important to keep fiscal deficit in check, it is also important to adopt a balanced approach to give impetus to growth. It is important for life insurance that the country achieves 7% + GDP growth consistently for next few years.
While India looks forward to be an economic superpower in the coming decade, it is important to start working towards it by taking the right steps today. Sound financial management decisions can ensure that the nation does not get burdened under higher cost of security. There is a greater need for support the life insurance industry, which through its long term investments, allows households to meet their life stage goals and for the country to meet its capital requirement for infrastructure.
Rajesh Sud is Executive Vice Chairman & Managing Director, Max Life Insurance