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The government could consider creating a separate investment window for life insurance policies for tax benefits.
Sources close to the development said that the Finance Ministry is considering the proposal to carve out a separate tax window under Section 80C for life insurance policies.
Additionally, the government is understood to be also re-visiting the Section 80C window for income tax benefits that is currently capped at ₹1.5 lakh per year.
“Life cover is different from the other investment avenues that are part of the current Section 80C window, as it is aimed at protection of an individual and also promotes the culture of savings and investment,” said a person close to the development, while noting that there is already a separate investment window for health insurance to avail tax benefits for this aim.
Sources said the Insurance Regulatory and Development Authority of India has also given its support to the proposal.
“Life insurance has a very specific purpose and is much different from the other investment instruments that get tax benefits. A separate window would ensure that more people buy this cover,” noted another person familiar with the development, while pointing out that general insurance products such as third-party motor insurance is mandatory in nature.
Long-standing demand
A separate window for life insurance investments has been a long-standing demand of the industry. If the proposal is finally found to be acceptable, a decision could be announced in the Union Budget 2020-21, which is to be presented on February 1.
Under Section 80C of the Income Tax Act, individuals can claim deduction for a plethora of investment-related payments such as premium for life insurance, deposits in public provident fund, contribution to pension account under the Employees Provident Fund Scheme or National Pension System, equity-linked savings schemes and National Savings Certificate.
The move could also act as a sweetener for individual tax-payers who would welcome the additional savings opportunity as well as the tax-saving opportunity.
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