One of the long-standing demands from the life insurance sector is a separate tax exemption window outside of Section 80C.
Currently, Section 80C provides a ₹1.5 lakh tax exemption, but life insurers argue that, given the scale of premiums they receive, an additional exemption limit would benefit both the industry and policyholders.
If this request is granted, it would be a major boost for all life insurance companies.
Similarly, general and health insurance companies have been pushing for an income tax exemption outside of Section 80D, which allows deductions on health insurance premiums.
A separate exemption window would encourage more people to invest in health and general insurance policies, increasing coverage and benefiting the industry.
One of the widely anticipated budget measures is further incentivisation of the new income tax regime. If the government enhances the attractiveness of this regime, it could be detrimental to the insurance sector. Unlike the old tax system, the new regime does not provide exemptions under Sections 80C or 80D. A stronger push towards the new system might reduce the appeal of insurance products as tax-saving instruments, negatively impacting both life and general insurers.
Finance Minister Nirmala Sitharaman may also announce key changes under the Insurance Amendment Act during the budget session.
Some of the expected amendments include:
- Increasing FDI in insurance to 100% – A positive move for all insurers.
- Introducing a composite insurance license – Beneficial for the entire sector.
- Allowing individual agents to partner with multiple insurers – Potentially negative for LIC but favourable for private life insurance companies.
- Permitting mergers between insurance and non-insurance companies – This would particularly benefit firms like Max Financial Services.
- Modifications in investment regulations for insurers – A move expected to support all life insurance companies.