As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1st, the insurance sector is actively pushing for key reforms to enhance coverage, affordability, and resilience within the industry. The sector's proposals specifically target tax benefits, micro-insurance penetration, and improved healthcare access for senior citizens.
One of the primary demands is an overhaul of tax policies to incentivize insurance adoption. Industry experts are advocating for increasing the tax deduction limits for health insurance premiums under Section 80D of the Income Tax Act. The existing limits of ₹25,000/₹50,000 are seen as insufficient in the face of soaring medical inflation, which was estimated to be between 13-14% in 2025. Proposals suggest raising these limits to ₹50,000 for individuals and families, and ₹1 lakh for senior citizens. Furthermore, the industry is seeking full tax deduction benefits under Section 80D for senior citizens purchasing independent health insurance policies, even if they do not have dependent family members. Tax professionals are also urging the government to expand deductions under the new tax regime to make it more practical and attractive. Integrating key deductions such as housing loan interest and medical insurance premiums would ease compliance burdens and provide equitable relief amid rising living costs.
The insurance sector is also requesting a resolution for Goods and Services Tax (GST) related issues. A major operational challenge for insurers is the inability to claim input tax credit (ITC) on essential services. While GST exemptions on retail policy premiums have provided some relief to customers, insurers cannot offset the GST paid on operational expenses like technology infrastructure, distribution commissions, and customer support. This unrecoverable tax inflates operating costs and erodes profitability. The industry's proposal for a more flexible input credit framework is aimed at breaking this cycle of escalating costs. Proposals include zero-rating GST for individual health, personal accident, and rural business policies. The industry is also seeking exemption or zero-rating of GST on insurance agent commissions and full Input Tax Credit (ITC) allowance on distribution expenses.
Recognizing the need to expand insurance coverage to underserved populations, the industry is emphasizing the importance of strengthening micro-insurance. This includes creating simple, standard covers for property damage from key perils, parametric add-ons for climate-related risks, and automated payouts to MSME bank accounts when triggers are met.
With India's aging population, the insurance sector is also focusing on senior health cover. Industry leaders are urging the government to align the tax treatment of insurance annuities with other pension instruments, such as taxing only the returns on annuity payouts and extending comparable deductions. This would allow individuals to choose retirement products based on suitability rather than tax differences. Experts are also calling for enhanced budgetary outlay for public health to strengthen primary care networks, expand preventive services, and relieve financial stress on citizens. Introducing separate and enhanced tax benefits for OPD services and preventive health screenings would encourage wider adoption of preventive care.
The insurance sector's expectations from Budget 2026 reflect a commitment to achieving the vision of "Insurance for All by 2047". By addressing tax-related challenges, promoting micro-insurance, and enhancing senior health cover, the industry aims to improve affordability, increase penetration, and strengthen India's overall risk resilience.
