All eyes are on Union Finance Minister Nirmala Sitharaman as her ministry gives the final touch to the Budget 2024, which will be presented in parliament on July 23. What’s special this time, however, is that she will become the first union finance minister to deliver it for the seventh straight time, beating the record set by Morarji Desai, who presented it for the sixth time in a row. Morarji Desai held the finance portfolio under both Jawaharlal Nehru and Indira Gandhi.

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While expectations from the Budget are high from all quarters, from individual taxpayers and businesses to stakeholders in each economic sector, life and health insurers have three primary demands on their wish list—lower GST rates for health products, long-term capital gain tax (LTCG) for all high-value traditional life insurance policies in line with Unit-Linked Insurance Plans (ULIPs), and align life insurance pension products with the National Pension System (NPS) by providing similar additional deduction of Rs 50,000 or more under income tax.

Lower GST rates and additional deductions on life, annuity, and health insurance products are some expectations the industry believes will enhance insurance penetration in the country. Additionally, they expect the government to consider the needs of specific segments such as middle-income groups and senior citizens struggling to meet the rising healthcare costs.

Reduce GST Rates On Insurance Products

Prasun Sikdar, MD & CEO of ManipalCigna Health Insurance, says, “Lowering the GST burden on health insurance premiums will be a huge respite for missing middle-income (groups) and senior citizens to get access to quality healthcare they need and help to significantly boost insurance penetration across India by driving affordability. Thus, our sincere submission to government is to reduce the current 18 per cent GST rate on essential service like health insurance. Currently, these expenses are still high relative to global standards, indicating a considerable protection gap. Private health insurance is vital in bridging this gap.”

Sikdar adds, “Despite some progress, India’s healthcare spending is still low compared to the global average. Thus, in the upcoming union budget, we expect the finance minister to announce higher allocation of funds for healthcare than what was proposed in interim budget.”

Interestingly, the industry expectations align with the government’s own agenda to ensure wider access to affordable healthcare and life insurance products, reduce out-of-pocket costs, and boost penetration. For example, the National Health Policy has proposed increasing public expenditure to 2.5 per cent of GDP by 2025. The Insurance Regulatory Development Authority (IRDAI) has also set a vision of insurance for all by 2047 to mark India’s 100 years of independence.

Align Tax Benefits With NPS

Tarun Chugh, MD & CEO of Bajaj Allianz Life Insurance, states, “As an industry, some of our budget expectations from the finance ministry is to consider lower GST on life insurance products. Given the under penetration of life insurance in the country, there is substantial room for sectoral growth. Additionally, in the pension products category, we urge the government to align life insurance annuity or pension products with the National Pension System (NPS) and allow the similar additional deduction of Rs 50,000 or more.”

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“We also request the ministry to introduce Long Term Capital Gain (LTCG) taxability for all high value traditional life insurance plans (more than Rs.5 lakhs aggregate annual premium), in line with high value ULIPs. This will bring in uniformity and tax efficiency for insurance customers at par with other similar financial products in the market,” Chugh adds.

Align LTCG Tax For All High-Value Life Insurance Plans

Nitin Mehta, Chief Distribution Officer–Partnership Distribution and Head Marketing, Bharti AXA Life Insurance, explains, “Extending LTCG to all high-value life insurance plans can enhance transparency and potentially lead to more tailored products. While traditional plans would still offer tax benefits for pure protection needs, the change could make retirement planning with investment-linked insurance more tax-efficient. Insurance companies might introduce products with a clearer distinction between insurance and investment components. ”

Currently, maturity proceeds from traditional life insurance plans are generally tax-free, offering a tax-advantaged way to save for long-term goals, says Mehta. However, he says, for ULIPs issued after February 1, 2021, with premiums exceeding Rs 2.5 lakh annually, only gains exceeding Rs 1 lakh on maturity are subject to 10 per cent LTCG tax.

However, whatever may be the case, consulting a financial advisor can help people navigate these changes and make informed decisions for their retirement goals.

How It Helps Retirement Planning?

If the government accepts the changes, it will ensure fairness. LTCG on high-value plans ensures a level-playing field with other investment options, says Mehta. Also, it will lead to improved targeting. For instance, tax-free benefits can be directed towards pure protection plans, catering to those prioritising life cover over investment returns.

Chugh says, “As we approach this budget, we anticipate measures that will sustain and simultaneously accelerate this long-term growth, benefiting individuals and businesses alike, with a strong emphasis on job creation.”

Finally, addressing inflation is crucial; it will enable people to save and invest more for long-term financial security. With increased earnings and disposable income, they can invest in versatile life insurance products for their peace of mind and financial goals.

The parliament’s monsoon session, which will start on July 22 and continue until August 9, will coincide with the budget presentation. In a related development, on June 22, the 53rd GST Council meeting, which was presided over by Union Finance Minister Nirmala Sitharaman, deliberated on various proposals to refine tax rates across goods and services ahead of the Budget. The decisions taken in that meeting are expected to be announced in the budget.