Key takeaways from Union Budget 2016 and Insurance

The Union Budget 2016, which was unveiled on February 29 by the Finance Minister, has received mixed response from media and experts alike. Some have called it a balanced act while others found it a bit of a dampener. In my view, while this year’s Budget is not as insurance-focused as last year’s, it still does have a few positives.

So, here’s what the Budget offers you with respect to insurance:

Launch of a new health insurance scheme for families below poverty line: The scheme will give health coverage for up to Rs.1 lakh, and senior citizens will get an additional top-up of Rs.30000. Until now, the only other health insurance scheme available for below poverty line families was the Rashtriya Swasthya Bima Yojana (RSBY), extending coverage of up to Rs 30,000. So, the increase in the cover is definitely a positive development. Also, as advanced age requires more attention with respect to health, the additional Rs 30,000 benefit to senior citizens is another welcome move.

What didn’t work in favor of this health insurance scheme is in terms of lack of clarity on the nature of the plan, its features and premium outgo. This plan will be beneficial for economically weaker segment only if it involves lower or no premium outgo. 

Service tax exemption on Niramaya Health Insurance Scheme (NHIS): Services provided under “Niramaya Health Insurance Scheme” (NHIS) will be exempt from service tax, effective 1^st April 2016. NHIS was launched by the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability. The premium amount for this policy stands at Rs.250 for families earning less than Rs 15,000 per month and Rs 500 for those earning more than Rs 15,000 for Rs 1 lakh sum insured.

With the decrease in service tax, you will receive higher returns. This is so because lower service tax means lower premiums for the same coverage amount.

Reduction in service tax of single premium policies: Service tax has been reduced from 3.5 per cent to 1.4 per cent of the premium paid towards single-premium annuity policies. As per this plan, you pay a lump sum amount to the insurer who, in turn, pays a regular income (annuity) to you over your lifetime. This proposal fails to impress larger section of society, given that policyholders prefer buying plans with regular premium.

TDS on maturity amount of life insurance policies halved: The rate of tax deducted at source has been reduced from 2 per cent to 1 per cent on life insurance policies where maturity amount (>Rs 1 lakh) is taxable. So for instance, if you get Rs 1.5 lakhs as maturity on your policy, you will have to pay a TDS at 1 per cent instead of the earlier 2 per cent. Note that in cases where maturity amount is below 10 per cent of the sum assured, no tax is levied under Section 10(10)D.

Motor insurance may become expensive: This is an indirect result of the hike in the cost of luxury cars and SUVs. For cars worth more than Rs 10 lakhs, an additional 1 per cent at TDS will be levied. And as car insurance premiums are linked with the cost of your car, the former too will increase.

Compared to this year, last year’s Budget saw a lot of big-ticket reforms and launch of new insurance schemes. While the new scheme being launched this year aims to cover one-third of the population, the wait is not over yet. A lot depends upon the scheme’s target audience, pricing, features and coverage to make it a success. Further these schemes require strong underwriting and adequate protection to ensure proper protection is offered to insurers.

(The author of the article is Yashish Dahiya, CEO and Co-founder, PolicyBazaar.com)