In the last few years, the Indian insurance industry has received special attention. Over the last six years, the government has launched two important low ticket-size insurance products – Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana – which have empowered people to invest in insurance products for a financially secure future.
Immense progress has been made in the insurance sector, with the industry growing at a steady pace. Moreover, the ongoing COVID-19 pandemic has highlighted the pivotal need of insurance in our lives for staying financially protected against unforeseen exigencies. Yet, a lot more needs to be done to increase the life insurance penetration rate, which currently rests at 3.7 percent. While the industry continues to play its part, insurers expect some key changes in the current taxation system, which will help in boosting the insurance penetration rate in the Indian markets while bringing maximum people under the insurance umbrella. For the upcoming Union Budget 2021, the insurance sector has its own wish-list.
Revision in Section 80C
Currently, under Section 80C of the Income Tax Act, 1961, taxpayers can avail a maximum exemption up to Rs 1,50,000 on investments made under life insurance, bank FDs, ELSS, PPF, NSC etc. Over the years, with the rise in incomes, it is difficult to leverage all possible deductions within the current limit. Considering the utmost importance of life insurance in an individual’s life, it is important to either consider making a separate deduction section for premiums paid towards life insurance policies or enhancing the current limit of Section 80C from Rs 1,50,000 to Rs 3.00,000.
Implementing either of the two will enable customers to look at life insurance as much more important than just a tax-saving tool and will also encourage people to buy life insurance to meet their future financial goals. More investment in long-term financial products such as life insurance also means an increase in availability of long-term capital in the financial system as a whole, which is much needed right now to bring back the economy on track.
Make pension received from annuity plans tax-free
We all must agree that India currently lacks enough pension products such as annuity plans that guarantee steady income flow after retirement. And the products that are available in the market do not qualify for exemption from tax. People investing in annuity plans have to pay tax on the annuity/pension received. It is important to understand that annuity plans are the most trusted way for senior citizens – major beneficiaries of annuity plans – to secure their life post-retirement life and cover the risk of outliving their retirement corpus.
Now, if they have to pay tax on the pension received through these plans, their income will reduce significantly. Annuity plans are primarily planned for the welfare of the senior citizens; now, if they have to pay tax on the pension received during the retirement phase, the primary objective of welfare is not met. It is recommended that annuities be made tax-free to encourage more and more people to invest in pension products and financially secure their retirement life. This will also promote social and economic welfare across the country.