The Union Budget 2022 is an opportune time for the government to address the anomaly of insurance under penetration in the country, and encourage the use of insurance through measures such as lower GST on insurance premiums.
The rural economy has been hit, with the COVID-19 pandemic highlighting the need not just for health insurance but also for protection against disruptions in business and livelihood, especially for non-agriculture-based income sources.
With the Budget focus likely to be on supporting small businesses and increasing rural consumption, measures to boost rural and micro insurance--along with income and lending support—will help steer the objective of financial inclusion.
Healthcare and allied services sector is also seen as a key area for the Budget, with talk of the government looking at a universal health care scheme along the lines of the one introduced in J&K.
Allowing input tax credit for GST paid on group health insurance policies, and enhancing the tax exemption limit on medical covers under Section 80D will go a long way in boosting health insurance penetration.
Following are the expectations of the general insurance industry from Budget 2022:
- Tax exemptions for insurance premium: Tax incentives or rebates are a great incentive for retail investors to consider the instrument as an investment option, as seen in the case of the National Pension System which benefitted greatly from the additional Rs 50,000 limit. A long-pending demand of the insurance industry has been to allow a separate exemption limit for insurance, beyond the one currently allowed as part of Section 80C.
- Tax incentives for insurance segments: The pandemic has emphasized the need for insurance for all citizens across socio-economic segments. While the government-led initiatives have helped push this for life insurance, Budget 2022 could look to increase focus on non-life cover—especially rural, health and personal accident insurance.
- GST exemption for micro insurance: This is an opportune time to give a boost to bite-sized insurance by measures such as GST exemption. This will help small-ticket size Insurance products like micro insurance and products with smaller sum assured limits, get the desired boost by becoming more affordable and accessible.
- Common (GST) Assessment Authority/ Centralised Registration: Large insurance companies have to face GST-related queries from different state authorities with respect to specific issues. Allowing insurers with a pan-India presence to set up a common assessment entity will help avoid dealing with multiple authorities over the same issues.
- Reduce TDS for insurance agents: Hiking the threshold limit for TDS under section 194D will help increase the disposable income of agents and reduce the volume of Income Tax refund processing.
- TDS obligation on interest awarded on MACT claims: As per Section 194A of the Income Tax Act, TDS is deductible if the interest amount on Motor Accidents Tribunal Awards (MACT) exceeds Rs 50,000 for a financial year. Various Courts held that interest is not an income but only a capital receipt. Insurers face contempt of Court if TDS is deducted in cases whereas courts have held otherwise. However, if TDS is not deducted, then insurers become non-compliant to the Income Tax Law. This has created a compliance dilemma for the industry, which has been seeking exemption from this TDS.
- Input tax credit for GST on group health cover: Allowing corporates to claim input tax credit for GST paid on group health insurance covers, will encourage more employers to offer health cover and ensure better insurance penetration in the country.
- Rectify double taxation for reinsurance broking: Insurance brokers have to pay GST on reinsurance premium and again on reinsurance brokerage. Rectifying this double taxation will make the tax treatment fairer and simpler.
- Reversal of GST on transaction of securities: Section 17(2) requires reversal of proportionate amount of input tax credit relating to exempt services or goods including transactions in securities. The insurance industry is a special service industry where the cash flows are invested as per Insurance Act and corresponding IRDAI investment regulations. Insurers do not trade in securities, but investments are held to protect policyholders’ interests by ensuring cash flows are safe, liquid and provide optimum returns. Hence, relief may be provided to the insurance industry by excluding securities transactions from the definition of exempt goods and services.
The COVID pandemic has become an unexpected advocate for increasing insurance penetration in the country. The government has an opportunity to announce a series of measures to give a fillip to the industry with the aim of securing all citizens and reducing the fiscal burden. This would also be a good time to consider insurance-based financing options for national calamities and exigencies—by way of introduction of catastrophic bonds or natural catastrophic pools, which will help save on unplanned relief expenses and maintain the Budget expenses and allocations.
(The author is MD & CEO, Shriram General Insurance.)
The government has an opportunity to announce a series of measures to give a fillip to the general insurance industry with the aim of securing all citizens and reducing the fiscal burden. 
