Budget 2025 Expectations for Insurance Industry: The insurance industry in India is poised for transformative growth, driven by increasing awareness of financial security and the need for robust risk management. As the government prepares for the Budget 2025, the industry is hopeful for significant reforms that will enhance financial inclusion, address affordability challenges, and align India’s insurance practices with global standards. Below are the key expectations of the insurance industry from the upcoming budget:
1. Separate Tax Exemption for Term Insurance
Term insurance is a cornerstone of financial planning, offering essential life coverage at an affordable cost. However, the lack of a dedicated tax exemption for term insurance premiums often discourages individuals from opting for adequate coverage.
“Introducing a separate tax category for term insurance would simplify financial planning and incentivize individuals to prioritize their family’s financial security. This reform could significantly narrow India’s protection gap, ensuring more households are safeguarded against unforeseen events,” said Sanjiv Bajaj, Jt. Chairman & MD, BajajCapital.
2. Reducing GST on Insurance Products
The current Goods and Services Tax (GST) rate of 18% on insurance premiums is a major barrier, particularly for low-income groups. High premiums, compounded by GST, make insurance products unaffordable for many. Reducing the GST rate would directly benefit policyholders, making insurance more accessible and affordable. This measure is critical to increasing penetration in underinsured segments, thereby fostering greater financial inclusion.
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3. Enhancing Tax Deductions for Health Insurance
With rising healthcare costs, health insurance has become a necessity rather than a luxury. “Increasing the deduction limit under Section 80D to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens would provide much-needed relief to policyholders. Additionally, introducing tax exemptions for contributions to Health Savings Accounts (HSAs) would offer further support in managing escalating medical expenses, ensuring that individuals can access quality healthcare without financial strain,” said Bajaj.
4. Updating Rule 6E for Unexpired Premium Reserves
Rule 6E of the Income Tax Act currently allows only 50% of unexpired premium reserves for calculation, which is outdated and misaligned with modern financial practices. Shifting to the 1/365 method, already permitted by the Insurance Regulatory and Development Authority of India (IRDAI),
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