A Look Ahead to the Budget for 2023: Insurance Sector Expectations
- ByStartupStory | January 30, 2023
Despite being the 5th largest economy, India is only the 10th largest insurance market (2021) with premiums of around US$ 125 Bn. For context, US leads the globe with US 2,700 Bn and China comes in 2nd with US$ 700 Bn. There is tremendous potential for growth in the industry. This is why the Indian insurance industry is eagerly awaiting the upcoming budget, as it is expected to bring several changes that will have a significant impact on the sector. As this is the last full budget of the current government, we might see some big reforms.
Increase in Section 80C deduction limit for Life Insurance– The current limit of section 80C is Rs 1.5 Lacs. This section provides deduction to income with respect to specific investments including life insurance. The limit was last revised 8 years ago in budget 2014-15. Keeping up with inflation is essential and this limit should be expected to increase to around Rs 2.5 Lacs.
Increasing in Section 80D limits health insurance for Health Insurance-The current deduction limit stands at Rs 25,000 that can be increased to atleast Rs 50,000 looking at the relevance of health insurance and the insurance premium inflation. The increase in limit will be a way to increase penetration in the market as well as push customers to receive the right sum insured value. A comprehensive cover now easily costs more than Rs 25,000, so there is a strong case for the limits to be increased
Reduction of GST on health and life insurance The GST applicable on health and life insurance should be reduced to 5 per cent from 18 per cent to reduce the burden on customers. This is going to encourage more people to purchase insurance, increasing penetration in the market. These insurance policies promote social and economic welfare and should therefore not be taxed at a high rate.
Increasing the TDS limit for Insurance commissions – Currently TDS is deducted for any commission payments above Rs 15,000 under section 194D. This can be revised to a higher number to ease compliance burdens and will provide a boost for insurance agents.
Composite Licenses – According to the current policy, insurance companies are required to have separate licences for selling general, life and health insurance products. It is expected that the regulator and the government will have a composite license that will enable insurance companies to sell all types of insurance products.
Reduce Minimum Capital Requirement for Insurance companies – It is expected that the minimum capital requirement for insurance companies will be relaxed from the Rs 100 Crores requirement so as to expand on the number of insurance companies in India.
Licence Renewal for intermediaries – As of now, insurance intermediaries like agents and brokers have to renew their licence at regular intervals. The government maybe looking at relaxing the renewal requirements and offering a one-time license. This will help reduce the burden of compliance and get more players in the distribution space and consequently help improve penetration.
Abolish the insurance commission cap structure – Currently, each insurance product category has limits on the amount of commissions that can be given out. The government is looking to abolish this structure and have a common expense cap on the total premiums. This will help rationalize the cost of distribution commissions and can possibly bring down the cost of insurance.
Authored by Anuj Parekh CEO, Co-Founder of Healthysure
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