Budget 2024: Life insurers seek GST rationalization and tax break on annuity

The life insurance industry's wishlist for the upcoming Union Budget 2024-25 includes a rationalization of the Goods and Services Tax (GST) and tax breaks on annuities. Sumit Rai, MD and CEO of Edelweiss Tokio Life Insurance suggests that lowering the GST rate from the current 18 percent on life insurance term policies could enhance affordability for the masses, particularly those interested in purchasing protection-oriented products.

“With the experience in the last 2-3 years, it can be viewed as a social necessity to reduce the GST burden, making the category more affordable", Rai said. While agreeing with the same, Rai said: “There is a vast aging population, which underlines the burgeoning pension and annuity market in India. A tax break on annuity could, therefore, be a game changer". Currently, the annuity is completely taxed in the hands of the customer, which spoils the product’s allure. "Apart from doing away the double taxation (annuities are taxed at entry and exit), the government may also consider extending the tax benefit of Rs 50,000 offered on NPS under Section 80CCD (1b), which is over and above the Rs 1,50,000-lakh-limit of 80C, to annuities", he added. 

Annuities stand as the exclusive solution that ensures comprehensive protection against the challenges of extended life expectancy. They offer a consistent income stream for the entirety of an individual's life, acquired in exchange for a single lump-sum payment. Life insurance providers are also advocating for a reevaluation of the current Rs 5 lakh cap, proposing an increase to Rs 10 lakh. "The life insurance industry has been requesting for a distinct tax deduction limit, specifically for life insurance, with a special emphasis on the term insurance category, apart from the existing 80C provisions. This would serve as an incentive for individuals to invest in life insurance policies and promote a sense of long-term security", Pankaj Gupta, MD and CEO, Pramerica Life Insurance said.

He emphasizes that the Insurance Regulatory and Development Authority of India's (IRDAI) vision, aiming to achieve 'insurance for all' by 2047, reflects a profound dedication to reshaping the insurance industry. The primary emphasis is on improving the availability, accessibility, and affordability of insurance services for both individuals and businesses, ushering in a transformative era for the sector

"From our perspective, we anticipate a year of ongoing change in the insurance sector, characterized by technological advancements, enhanced focus on customer experiences and an increasing emphasis on environmental and social responsibility. Even though the upcoming Budget is a Vote on Account and not a full-fledged Budget, we foresee a continuation of the infra capex and self-dependency themes", Gupta added. As per IRDAI data, the first-year premium for life insurers witnessed a 7.1 percent decline, amounting to Rs 2,50,274 crore until December 2023 in the current fiscal year. This contrasts with the Rs 2,69,190 crore recorded in the corresponding period last year, primarily attributed to a reduction in group premiums.