Union Budget 2018 – Non-Life Insurance Expectations
The Union budget for 2018 will be presented amid the backdrop of some pathbreaking reforms by the government in the recent past. The demonetization drive in 2016 and more recently GST implementation from July 2017 have been some of the most noteworthy steps taken by the Government in recent times. One will expect policy makers to continue with this reformist focus in the annual budget exercise to take this agenda forward.
The Non-life insurance industry is passing through a defining phase, as companies get listed on the stock exchanges to start a new chapter in their corporate journey. This is one industry that contributes significantly to the country’s progress. Detailed analyses show that a one standard deviation increase in GI penetration induces a per capita GDP growth of 0.39%. At the same time, the industry is credited with employing over 7 lakh individuals directly or indirectly. Given the low penetration of GI in India at around 0.77% of GDP, there is immense scope for this sector, one that policy makers should help realize through appropriate measures in the budget and through reforms in general.
Health insurance
The Government has been providing tax incentives in health insurance to consumers. Currently, the Income Tax Act allows for deduction of Rs. 25,000 for premium paid towards health insurance by a policyholder for himself, spouse and children. An additional deduction of Rs. 25,000 is allowed for premiums paid for parents (Rs. 30,000 in case parents are senior citizens). In the recent years, the cost of medication has been on a continuous rise across the country. In this scenario, the current slabs necessitate an increase to bring the tax incentives on health insurance premium in line with the rising cost of hospitalization. Policy makers should consider increasing the limit for deduction on health insurance premium to Rs. 75,000 (Rs. 100,000 for senior citizens).
Home insurance
The Union Budget should also act as an enabler to promote non-life insurance in other areas that are of critical importance. A lot is being done to protect the interest of home owners by introduction of the RERA act. However, while measures are being taken to empower home buyers, it is equally important to motivate them to protect their homes from any perils. This is critical given the increase in the number of burglaries and natural disasters in various states including large cities in recent times. Introduction of provisions in the Budget towards tax incentives on home insurance premium would be a big boost to the adoption of this underrated insurance product by home owners.
TDS on motor accident claims
The issue of the TDS on Motor Accident Claims remains another point of concern. According to the Income Tax Act, TDS is deductible if the interest amount that Motor Accident Claims Tribunal (MACT) awards exceeds Rs. 50,000 in a financial year. MACT awards victims of motor vehicle accidents compensation, as well as interest. For many victims of motor vehicle accidents, tax liability does not arise in the normal course of things. Given this scenario, the system of award, which was brought as a relief measure, should not be used as an instrument of taxation. An amendment should be done to exclude interest component on MACT awards from TDS application. Pending amendment, appropriate instructions could be issued to provide relief to both, claimants of compensation and non-life insurance companies.