Budget 2020: Insurance Industry to Remain Hindered

The insurance sector plays a focal role in the development of an economy. Insurance assists in manoeuvring the small savings of the taxpayers to develop funds, which can further be invested either in the sector of infrastructure or in the capital markets. This will further result in the accessibility of capital, which will help for the development, and growth of the country.

Budget 2020 has surely left the insurance industry slightly disappointed. Besides, some proposals have a negative influence on the insurance industry. For instance, the introduction of new optional tax regime for any individual and Hindu Undivided Family wherein with the changes in the tax slabs and rates, now, the taxpayer need to undergo a lot of deductions under the Income Tax Act,1961 (ITA) and so on.

The penetration of insurance is already low in India. Besides, with the new optional tax regime, chances are that individual taxpayers falling in the lower bracket might not buy or renew life insurance product any further, which is a negative impact upon the life insurance sector. Moreover, earlier announced in the budget in regards to the Foreign Direct Investment policy announcement remain untouched in budget 2020.

The negative impact of the budget on the life insurance sector will negatively influence LIC validation. Therefore, it is expected that the government would enhance the FDI limit in insurance companies up to 74%, which will help in improving insurance penetration and innovation in the country.

*Tax benefit is subject to changes in tax laws