Budget 2026 Expectations: Insurers Seek Higher Tax Deductions And GST Reforms - LawChakra
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As Union Budget 2026 nears, India’s insurance industry seeks major fiscal and regulatory reforms to boost penetration. Key demands include higher tax deductions, health and life benefits under the new tax regime, and GST ITC clarity to cut costs.
NEW DELHI: As Union Budget 2026 approaches, the insurance industry is intensifying its focus on fiscal and regulatory reforms deemed crucial for expanding coverage and reducing protection costs. Insurers are advocating for enhanced tax deductions on insurance premiums, the inclusion of both health and life insurance benefits in the new tax regime, and a conclusive resolution to the input tax credit (ITC) issue under GST, which has been inflating operational expenses.
Industry leaders argue that a more neutral and holistic tax framework could significantly increase insurance adoption, encouraging households to prioritize protection alongside savings. They contend that extending tax incentives to the new regime would eliminate disparities between annuity, pension, and other long-term financial products, enabling consumers to make choices based on necessity rather than tax benefits. Additionally, addressing the ITC issue could relieve premium pressures, especially for low-value policies, making insurance more accessible to first-time and price-sensitive buyers.
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Presently, substantial tax incentives for insurance are mainly confined to the old tax regime. Under Section 80D of the Income-tax Act, individuals and families under 60 can claim deductions of up to Rs 25,000 on health insurance premiums, while senior citizens can claim up to Rs 50,000. However, these benefits are not available under the new tax regime, which diminishes the influence of tax policy in widening insurance coverage as more taxpayers transition to the simplified system.
This policy gap persists amidst robust growth in India’s broader economy. While insurance penetration is improving, it remains low compared to global standards. Increased awareness and recent demand trends indicate a growing acceptance of insurance; however, structural limitations continue to hinder sector growth.
Measures such as allowing 100% foreign direct investment in insurance and eliminating GST on individual insurance premiums have bolstered capital flow and enhanced affordability, renewing interest across various income groups. Industry participants view Budget 2026 as an essential opportunity to capitalize on this momentum and integrate insurance more centrally into household financial planning.
Ratings agency ICRA predicts that the industry’s new business premium (NBP) will rise from Rs 4.3 lakh crore in FY26 to Rs 4.6 lakh crore in FY27, reflecting growth rates of 8.9% and 8.2%, respectively. Insurers have reported a resurgence in demand since October, largely attributed to improved affordability following GST relief.
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General Insurance Sector:
Naveen Chandra Jha, managing director and CEO of SBI General Insurance, highlighted that Budget 2026 arrives at a pivotal moment for the general insurance sector.
He said,
“The focus has shifted from rapid topline expansion to sustainable, disciplined growth. Stronger regulatory oversight, improving claims governance, and rising customer expectations are reshaping the industry into a more transparent and capital-efficient ecosystem,”
Jha further emphasized that targeted incentives for micro-insurance, social sector covers, and low-premium products could significantly boost adoption among underinsured segments, including small businesses, rural households, and first-time buyers.
He also pointed out the necessity for policy support to develop climate-risk insurance solutions and strengthen India’s resilience to risks. According to Jha, ongoing emphasis on data-driven reforms, including unified insurance data exchanges and consent-based digital infrastructure, could enhance underwriting accuracy, reduce fraud, and streamline claims settlement.
Life Insurance:
Offering similar insights, Tarun Chugh, managing director and CEO of Bajaj Life Insurance, noted that the Budget presents an opportunity to reinforce life insurance as a long-term savings and retirement solution. He advocated for aligning tax treatment of insurance annuities with other pension products by taxing only the returns on annuity payouts and extending comparable deductions.
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Chugh asserted,
“This would allow individuals to choose retirement products based on suitability rather than tax differences,”
He also called for equal taxation treatment between traditional and unit-linked life insurance policies to simplify the tax structure and foster disciplined, long-term wealth accumulation. Measures such as rationalizing transaction costs and offering stamp duty exemptions for lower-value policies could further enhance affordability in rural and social insurance segments.
Economic Survey 2025-26:
Insights from the Economic Survey 2025 support these expectations. Although overall insurance penetration has experienced a slight decline, premium growth remains strong, indicating persistent consumer interest. Tier 2 and tier 3 cities, along with semi-urban and rural areas, are emerging as vital growth engines, presenting insurers with a largely untapped market.
Industry leaders believe that with the appropriate mix of tax incentives, digital innovations, and inclusive policy measures in Budget 2026, the insurance sector can significantly enhance financial security, retirement preparedness, and economic resilience among Indian households.