Budget 2026 expectations: Insurance industry seeks tax deductions, ITC fix, new-regime parity

With the Union Budget 2026 imminent, the insurance industry has sharpened its focus on fiscal and regulatory changes it believes are critical to expanding coverage and lowering the cost of protection. Insurers are calling for enhanced tax deductions on insurance premiums, the inclusion of health and life insurance benefits within the new tax regime, and a definitive resolution to the input tax credit (ITC) issue under GST, which continues to inflate operating costs.

Industry leaders contend that a more neutral and comprehensive tax framework could significantly lift insurance adoption by encouraging households to prioritise protection alongside savings. Extending tax incentives to the new regime, they argue, would remove distortions between annuity, pension and other long-term financial products, allowing consumers to make choices based on need rather than tax arbitrage. Addressing the ITC anomaly, meanwhile, could ease pressure on premiums—particularly for low-value policies—making insurance more accessible to first-time and price-sensitive buyers.

Currently, meaningful tax incentives for insurance remain concentrated in the old tax regime. Under Section 80D of the Income-tax Act, individuals and families below 60 years of age can claim deductions of up to ₹25,000 on health insurance premiums, while senior citizens can claim up to ₹50,000. These benefits, however, are unavailable under the new tax regime, reducing the impact of tax policy as a lever to widen insurance coverage at a time when an increasing number of taxpayers are migrating to the simplified regime.

This policy gap persists even as India’s broader economy posts robust growth. Insurance penetration, though improving, remains modest compared with global benchmarks. While rising awareness and recent demand trends point to growing acceptance of insurance, structural constraints continue to cap the sector’s expansion. Reforms such as permitting 100% foreign direct investment in insurance and removing GST on individual insurance premiums have strengthened capital flows and improved affordability, triggering renewed interest across income groups. Industry participants now see Budget 2026 as a chance to build on this momentum and push insurance closer to the centre of household financial planning.

Ratings agency ICRA estimates that the industry’s new business premium (NBP) will grow from Rs 4.3 lakh crore in FY26 to Rs 4.6 lakh crore in FY27, implying growth rates of 8.9% and 8.2%, respectively. Insurers have reported renewed demand since October, driven largely by improved affordability following GST relief.

General insurance sector

Naveen Chandra Jha, managing director and CEO of SBI General Insurance, said Budget 2026 comes at a critical juncture for the general insurance sector. “The focus has shifted from rapid topline expansion to sustainable, disciplined growth. Stronger regulatory oversight, improving claims governance and rising customer expectations are reshaping the industry into a more transparent and capital-efficient ecosystem,” he said. Jha added that targeted incentives for micro-insurance, social sector covers and low-premium products could significantly accelerate adoption among underinsured segments such as small businesses, rural households and first-time buyers.

He also highlighted the need for policy support to develop climate-risk insurance solutions and strengthen India’s risk resilience. According to Jha, continued emphasis on data-led reforms, including unified insurance data exchanges and consent-based digital infrastructure, could improve underwriting accuracy, curb fraud and enhance claims settlement.

Life insurance

Echoing similar views, Tarun Chugh, managing director and CEO of Bajaj Life Insurance, said the Budget offers an opportunity to strengthen life insurance as a long-term savings and retirement solution. He called for aligning the tax treatment of insurance annuities with other pension instruments by taxing only returns on annuity payouts and extending comparable deductions. “This would allow individuals to choose retirement products based on suitability rather than tax differences,” Chugh said.

He also argued for parity in taxation between traditional and unit-linked life insurance policies to simplify the tax framework and promote disciplined, long-term wealth creation. Measures such as rationalising transaction costs and providing stamp duty exemptions for low-ticket policies could further improve affordability in rural and social insurance segments.

Economic Survey 2025

Insights from the Economic Survey 2025 reinforce these expectations. While overall insurance penetration has seen a marginal dip, premium growth remains robust, indicating sustained consumer interest. Tier 2 and tier 3 cities, along with semi-urban and rural areas, are emerging as key growth engines, offering insurers a largely untapped opportunity.

Industry leaders believe that with the right mix of tax incentives, digital innovation and inclusive policy measures in Budget 2026, the insurance sector can play a far stronger role in boosting financial security, retirement preparedness and economic resilience across Indian households.