Insurance Industry tax demands budget 2026: As the Union Budget 2026 approaches, India’s insurance industry has put forward a clear wish list for the government. At the heart of its demands are better tax incentives, parity between old and new tax regimes, and fixes to long-standing GST-related anomalies.
For millions of Indian households, these proposals are not just policy discussions. They could directly affect how affordable insurance becomes, how much tax you save, and how secure your family’s financial future can be.
Let’s break down what the insurance industry is asking for and why it matters to everyday taxpayers like you.
Why the Insurance Industry Is Looking at Budget 2026
Insurance penetration in India is still relatively low compared to global standards. While awareness has improved, many people hesitate to buy insurance due to affordability concerns and limited tax benefits under the new tax regime.
Industry leaders believe Budget 2026 is an opportunity to:
- Encourage more people to buy life and health insurance
- Support long-term savings and retirement planning
- Align tax policies with the government’s vision of “Insurance for All by 2047”
To achieve this, insurers want targeted tax reliefs and regulatory clarity.
Demand #1: Tax Deductions Under the New Tax Regime
The Core Problem
One of the biggest concerns is that the new tax regime does not offer deductions for insurance premiums, unlike the old tax regime.
Currently:
- Under the old regime, life insurance premiums qualify for deductions under Section 80C
- Health insurance premiums get deductions under Section 80D
- The new tax regime removes most of these benefits
As more salaried individuals move to the new regime for its lower tax rates, insurance purchases may suffer.
What the Industry Wants
The insurance sector is urging the government to:
- Allow insurance-related deductions even under the new tax regime
- At least include life and health insurance as priority deductions
Why This Matters to You
If accepted, this move would:
- Make insurance attractive even under the new tax regime
- Encourage disciplined long-term savings
- Reduce the “either tax saving or insurance” dilemma many taxpayers face
In simple terms, you wouldn’t have to choose between lower tax rates and financial protection.
Demand #2: Higher Limits for Health Insurance Deductions
Current Situation
Under Section 80D, the deduction limits for health insurance premiums have remained unchanged for years:
- ₹25,000 for self and family
- ₹50,000 for senior citizens
With rising medical costs and higher insurance premiums, these limits feel outdated.
Industry Recommendation
Insurers are asking for:
- A revision in health insurance deduction limits
- Separate higher caps for senior citizens and families
Impact on Households
An increase in limits would:
- Make comprehensive health cover more affordable
- Reduce out-of-pocket expenses
- Encourage people to opt for higher sum insured plans
Given today’s healthcare inflation, this change could be a major relief for middle-class families.
Demand #3: Fixing the GST Input Tax Credit (ITC) Anomaly
Understanding the ITC Issue
Insurance companies currently face restrictions on claiming Input Tax Credit (ITC) on certain expenses under GST rules.
This results in:
- Higher operational costs for insurers
- Increased premiums for customers
In simple words, insurers pay GST but can’t fully offset it, and the cost ultimately gets passed on to policyholders.
What the Industry Is Asking
The insurance sector wants:
- Removal or correction of ITC anomalies
- Clear GST rules allowing fair credit claims
How It Helps Consumers
If GST inefficiencies are resolved:
- Insurance premiums could become more competitive
- Costs may reduce over time
- The sector can invest more in customer service and innovation
This is a behind-the-scenes change, but it can have visible benefits for policy buyers.
Demand #4: Encouraging Pension and Annuity Products
India is witnessing a growing elderly population, yet retirement preparedness remains low.
The insurance industry wants:
- Additional tax incentives for pension and annuity products
- Encouragement for long-term retirement planning
Such measures could help people build stable post-retirement income without relying entirely on government support.
Aligning With the “Insurance for All” Vision
The government’s ambitious goal of “Insurance for All by 2047” requires:
- Affordable products
- Simple tax structures
- Strong incentives for first-time buyers
The industry believes Budget 2026 can act as a catalyst by making insurance:
- Tax-efficient
- Easy to understand
- Financially rewarding
What Budget 2026 Could Mean for Taxpayers
If the government accepts even some of these recommendations, taxpayers could benefit in multiple ways:
- More flexibility in choosing between tax regimes
- Higher tax savings on insurance premiums
- Better health and retirement coverage
- Lower long-term insurance costs
For first-time earners and young professionals, this could also encourage early financial planning.
Final Thoughts
The insurance industry’s demands ahead of Budget 2026 are not just about business growth. They are closely tied to financial inclusion, healthcare security, and retirement preparedness.
By reintroducing insurance deductions under the new tax regime and fixing GST-related issues, the government has an opportunity to strengthen India’s financial safety net.
As taxpayers, it’s worth watching how these proposals unfold—because the decisions made in Budget 2026 could shape your insurance and tax planning for years to come.
FAQs
1. Why is the insurance industry demanding tax benefits under the new tax regime?
Because the new tax regime currently removes deductions for insurance premiums, making insurance less attractive for taxpayers who opt for it.
2. Will insurance become cheaper if GST ITC issues are fixed?
Potentially yes. Resolving ITC anomalies can reduce insurers’ costs, which may lead to more competitive premiums.
3. Are health insurance tax limits likely to increase in Budget 2026?
The industry has strongly recommended it, but the final decision rests with the government.
4. Does the old tax regime still offer better insurance benefits?
Yes, as of now, the old tax regime provides deductions under Sections 80C and 80D.
5. How does this impact middle-class families?
Better tax incentives can make insurance more affordable, improving financial security and healthcare access.