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Budget Insights

Budget 2022 - Insurance companies seek separate deduction limit of Rs 1 lakh for premium

Sajhyadri C Posted on July 02, 2025

Table of Contents

Introduction

As the insurance industry did a run-up to the Budget 2022, it had several demands up its sleeve. This included a decrease in GST on premiums of insurance, and the carving out of Life Insurance from Section 80C, allowing for deductions on different investments. Furthermore, the industry looked for the addressing of double taxation in case of payments of annuity, among other things requested from the Finance Ministry.

Budget 2022, with a focus on pandemic-related aspects, was expected to target the strengthening of the healthcare sector, local manufacture and a general revival of the economy, all this amid growing worry over new variants of the virus.

Seeking Segregated Benefits

Seeking a segregated carve-out for Section 80C in terms of income tax deductions, the life insurance industry has its own demands to make within the wide category of the insurance segment.Presently, the majority of financial purchases come under the umbrella of Section 80C and are capped accordingly, at Rs. 1,50,000. Why should there be a carve-out demand at all, you may ask. This is because Section 80C is riddled with other financial investments, and the life insurance sector, it is deemed, cannot be clubbed with these. With life insurance penetration on the rise, again due to the evident pandemic, experts predict a huge amount of penetration into this industry in the not-too-distant future. Consequently, separate carve-outs are necessary to meet the demands of the requirements of this particular sector of investment. Apart from this, a segregated carve-out is the rationale for a logical division of clients' funds into short-term investments and long-term investments.

The Reasoning for GST and Tax

Experts and analysts in the industry state that 18% of GST on insurance premiums is at the upper spectrum. Lowering this could bring relief while giving a boost to insurance penetration. In a dynamic environment that is the breeding ground for health services to take shape, the need for health insurance is expected to rise by leaps and bounds. However, the premium charged on any given plan plays a pivotal role in a client’s decision to purchase health insurance. The premium rate obviously increases with the 18% GST addition, thus hindering the motivation of people to opt for good health insurance plans. In the times we live in, health insurance is not a choice, but a necessity. Experts from the sector suggest a change in GST, making it 5% instead of 18%, and this would encourage individuals to select better policies, rather than low-end ones.

Tax incentives could very well be a draw for novice investors of life insurance, giving the industry a further push in the right direction. Moreover, in the sector of life insurance, only a third of Indian women opt for this, and lower premiums cut down by lowering GST could account for more affordability by women. The masses of India who are prone to buying term-related products need this GST rationalisation so that they can purchase security-related instruments with ease. Furthermore, double taxation and such anomalies in the case of payments of annuity can be well-addressed in the budget. Relief is much-sought in annuity payments as they relate to senior citizens. This is true as far as having a reduction in capital gains is concerned while buying annuity. Tax shouldn’t be the main source of concern for people in the golden era of their life and double taxation occurs with annuity. The more people opt for insurance products, the easier it is on the government, and this can only be achieved by reducing tax on these instruments.

What the Future Holds

The life insurance segment in the Indian industry is touted to grow by 13%-14% within the next few years as more and more people see its vital role in their lives. In the Union Budget 2022, a gamut of measures were introduced for a variety of sectors. India's growth for the present year is estimated at almost 9.2%, and this stands proudly as the highest among leading world economies. While the Budget 2022 is a forward-thinking budget, targeting capital expense in the development of infrastructure, it has turned out to be quite neutral for the life insurance sector, with almost none of the expectations of analysts being met.

Hi! I’m Sajhyadri C

Blogger

Always ready to dive into new ideas and topics, Sajhyadri is a storyteller from Kolkata, the City of Joy. He enjoys weaving narratives that make finance feel less intimidating and more inspiring. As a financial content writer, he uses the power of the pen to craft insightful blogs, compelling video scripts, and marketing copies that catch the eye. Off duty, he’s either checking out the latest web series, listing out new eateries, or debating whether his favourite football team will finally have a better season!