With the Union Budget 2026-27 fast approaching, the insurance industry has stepped up its demands for targeted tax reliefs aimed at improving insurance affordability, enhancing penetration, and addressing long-standing structural issues in the tax and GST framework. The key asks include a hike in insurance-related tax deductions, extension of tax benefits to the new tax regime (NTR), and a resolution of the input tax credit (ITC) anomaly under GST.
Industry stakeholders contend that these measures would encourage households to opt for adequate protection, ensure tax parity for annuity and pension products, and help contain premium escalation.
Health Insurance: Call for Higher 80D Deduction
Under the current provisions of the Income Tax Act, 1961, deductions for health insurance premiums under Section 80D are available only under the old tax regime, subject to the following limits:
- ₹25,000 for individuals and families below 60 years of age
- ₹50,000 for senior citizens
Insurers argue that these thresholds have become outdated in the face of sustained medical cost inflation.
The Managing Director & CEO of IFFCO-TOKIO General Insurance has stated that substantially enhancing, potentially doubling, these limits would incentivise households to opt for adequate health cover rather than minimal, tax-driven policies, thereby supporting long-term financial security.
Extend Health Insurance Deductions to NTR
Tax analysts have also emphasised the need to extend health insurance deductions to taxpayers opting for the new tax regime. At present, the absence of such deductions under the new regime risks discouraging insurance adoption among taxpayers prioritising simplified compliance.
Experts argue that extending essential insurance deductions would ensure that the pursuit of a simpler tax structure does not undermine public health protection and household risk mitigation.
Life Insurance: Demand for Deduction Parity Across Tax Regimes
The industry has similarly sought rationalisation of life insurance tax benefits, which currently remain confined to the old tax regime. Existing provisions include:
- A deduction of up to ₹1.50 lakh under Section 80C for life insurance premiums
- Tax exemption under Section 10(10D) on maturity proceeds or death benefits
According to tax experts, extending these benefits to the new tax regime, along with reviewing thresholds for taxing high-value policy payouts, would strengthen retirement and long-term savings planning.
Proposal for Separate Deduction for Term Life Insurance
Tax analysts have further suggested introducing distinct tax deductions for term life insurance premiums, drawing parallels with the additional deductions available for pension contributions under the National Pension System (NPS).
Experts have also flagged inconsistencies in the taxation of life insurance outcomes, noting that traditional policies with higher annual premiums are often subject to less favourable tax treatment compared to unit-linked insurance products. Addressing this imbalance, they argue, would improve neutrality and transparency in insurance taxation.
GST: Resolution of ITC Anomaly Sought
A significant operational concern raised by the insurance industry relates to the non-availability of input tax credit under GST.
Although GST exemptions on retail life and health insurance premiums have eased the immediate cost burden on policyholders, insurers remain unable to claim ITC on critical input services, including:
- Distribution and intermediary services
- Customer servicing operations
- Technology and digital infrastructure
The Chief Investment Officer of Go Digit General Insurance has observed that such unrecoverable taxes inflate operating costs and ultimately translate into higher premiums for consumers. Consequently, the industry is urging the government to introduce a more flexible ITC mechanism and undertake broader GST rationalisation in Budget 2026-27.
Conclusion
The insurance industry’s pre-Budget proposals underscore a broader demand for tax parity, affordability, and structural efficiency. Updating outdated deduction limits, extending benefits to the new tax regime, and resolving the ITC anomaly could collectively improve insurance coverage while containing cost pressures.
The extent to which these recommendations are reflected in the Union Budget 2026-27 will be closely monitored, given their potential impact on household financial protection and the long-term growth of India’s insurance sector.
Source: MoneyControl