Following the rationalisation of GST on insurance premiums, the insurance industry is now looking to the Union Budget 2026-27 for enhanced income tax incentives to boost coverage, strengthen retirement savings, and deepen insurance penetration across India.
Insurers have called for improved tax benefits for protection and health insurance plans under both tax regimes, stronger support for pension products, and a higher threshold for taxing maturity proceeds of high-value insurance policies.
Push for Higher Tax Benefits on Life and Health Insurance
Industry representatives say the recent GST relief has made insurance products more affordable, and complementary income tax measures could further accelerate adoption. Insurers are seeking:
- Enhanced tax deductions for protection and health insurance premiums under both the old and new tax regimes
- Stronger incentives for pension and retirement products to encourage long-term savings
According to industry leaders, simpler and more inclusive tax reforms can significantly advance the government’s vision of “Insurance for All by 2047.”
Higher Threshold for Taxing Maturity Proceeds
One of the key demands is an increase in the threshold for taxing maturity proceeds of traditional life insurance policies (excluding ULIPs) from ₹5 lakh to ₹10 lakh.
Currently, income from traditional policies with annual premiums exceeding ₹5 lakh is taxable, a provision introduced in February 2023. Insurers argue that the existing limit discourages long-term savings through insurance and should be revised to reflect rising incomes and inflation.
ULIP Tax-Free Premium Limit May Be Raised
Insurers have also proposed increasing the tax-free premium limit for Unit Linked Insurance Plans (ULIPs) to ₹5 lakh, aligning them with traditional insurance products. The industry believes this would provide consistency across product categories and encourage disciplined, market-linked savings.
Health Insurers Seek Higher Section 80D Deduction
General and health insurers have urged the government to increase the Section 80D deduction limit for health insurance premiums. At present:
- Individuals and families below 60 years can claim up to ₹25,000
- Senior citizens are eligible for a deduction of ₹50,000
Insurers say these limits were set several years ago and no longer reflect rising medical inflation and the growing cost of healthcare. Doubling the deduction, they argue, would encourage households to opt for adequate coverage rather than minimal protection.
Focus on Climate-Risk Insurance and Digital Reforms
The industry has also called for policy support to strengthen climate-risk insurance, citing the increasing frequency of extreme weather events. Experts highlighted the need for:
- Development of climate-risk and catastrophe insurance solutions
- Continued investment in data-led reforms, including unified insurance data exchanges
- Expansion of consent-based digital infrastructure to improve underwriting, reduce fraud, and enhance claims processing
A balanced approach combining affordability, innovation, and data-driven governance, industry leaders say, will help insurers scale responsibly while supporting financial inclusion.
Solvency Support for PSU General Insurers
Another key expectation from Budget 2026-27 is capital support for public sector general insurers, National Insurance, Oriental Insurance, and United India Insurance, whose solvency ratios remain under pressure.
Industry analysts believe that a budgetary allocation for recapitalisation would strengthen these insurers and improve overall sector stability. They also suggested targeted incentives to improve insurance penetration, particularly for low-ticket policies.
Outlook Ahead of Budget 2026-27
With insurance penetration in India still relatively low, the industry sees Budget 2026-27 as an opportunity to align tax policy with long-term protection, retirement security, and risk resilience goals. Stakeholders believe that calibrated tax relief, combined with structural and digital reforms, can significantly expand coverage and strengthen India’s insurance ecosystem.
Source: Business Standard