Union Budget 2025: Key Reforms Expected for India’s Insurance Sector
Union Budget 2025 is expected to bring tax benefits and GST cuts, boosting India’s insurance sector and advancing the 'Insurance for All' initiative.
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The Union Budget 2025, set to be presented by Finance Minister Nirmala Sitharaman on February 1, is anticipated to bring significant reforms aimed at advancing India’s “Insurance for All” initiative. Experts in the insurance industry are eagerly awaiting announcements that could help increase insurance penetration and improve financial inclusion across the country.
One of the most anticipated reforms involves increasing the tax benefits for policyholders. Industry insiders are pushing for an enhancement of the current tax deduction limits under Sections 80C and 80D, which would likely encourage more people to invest in life and health insurance.
- Section 80C Limit Increase: Currently, Section 80C allows for a maximum deduction of Rs 1.5 lakh on life insurance premiums. There is growing demand for an increase in this limit, with some experts advocating for a separate, higher cap for term insurance and pension plans.
- Section 80D Expansion: The insurance sector is also calling for expanded tax benefits under Section 80D, which currently offers deductions ranging from Rs 25,000 to Rs 50,000 for health insurance premiums. A rise in these exemptions could motivate more individuals to prioritize health coverage.
Industry professionals believe that these tax incentives could lead to higher life insurance penetration, ultimately encouraging citizens to better secure their financial futures.
Another key area of focus for the upcoming budget is the Goods and Services Tax (GST) on insurance premiums. At present, an 18% GST on life and health insurance premiums is seen as a barrier to affordability. While the GST Council has delayed a decision on reducing this rate, there is still hope that the Union Budget 2025 will address this issue.
According to the CFO and Executive Director of HDFC Life Insurance, lowering the GST on health insurance premiums, while maintaining the Input Tax Credit (ITC) for the industry, could reduce costs for policyholders. This would make insurance products more accessible and affordable, benefiting a larger portion of the population.
The Group of Ministers (GoM) is reportedly still in discussions with insurance regulators regarding this matter, and any relief provided would be a major step toward improving the affordability of insurance products in India.
Another potential game-changer is the introduction of mandatory basic term life insurance coverage for all formal sector employees. This proposal, similar to the Employees’ Provident Fund (EPF), aims to ensure that dependents of employees are financially protected in the event of an untimely death.
A spokesperson from ACKO Life Insurance noted that this measure could address the significant gaps in insurance coverage, providing financial security for families and contributing to higher insurance penetration rates.
Despite gradual improvements, India’s insurance penetration remains well below global standards. Experts believe that the reforms expected in the Union Budget 2025—such as enhanced tax benefits, reduced GST, and mandatory term life insurance for employees—could play a pivotal role in achieving the government’s vision of “Insurance for All” by 2047.
