For those whose primary objective is to build a retirement fund, life insurance as a savings instrument will lose its sheen. However, purchasinghealth insurance will become cheaper as payments for pre-acceptance medical tests will now be eligible for tax breaks.
The finance minister has doubled the minimum cover requirement under a life policy for it to be eligible for tax breaks. All forms of insurance — including life, health, motor and property — will also become more expensive because of the two percentage point increase in service tax. The new limits for tax exemption eligibility under section 80C and 10 (10D) of the Income Tax Act has been revised from the previous sum assured-to-premium multiple of five times to 10 times. This is consistent with the proposal under the Direct Tax Code (DTC) which seeks to have a higher level of insurance under life policies, but at 20 times.
Until now, life insurance was an attractive avenue for accumulating savings for retirement. Now the gains will be vastly curtailed because a big chunk of the premium will go towards life cover."Compared to the DTC, the Budget proposal is a welcome move," said S B Mathur, secretary general of the Life Insurance Council.
An LIC official said those in the higher age group will now find it more expensive to buy a life cover.
According to Bhargav Dasgupta, MD, ICICI Lombard, the tax break of Rs 5,000 for preventive health check-ups will help in bringing a greater focus on preventive health care. General insurers say there's another indirect benefit —health checks will enable early detection of ailments.
"It may also result in product innovation in the health insurance industry," said Shashwat Sharma, partner, KPMG.
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