The Union Budget 2025 is expected to bring transformative reforms to India’s insurance sector, accelerating its growth and enhancing accessibility as part of the country’s ambitious “Insurance for All by 2047” vision.
Over the past several months, the Department of Financial Services in the Finance Ministry has completed an exhaustive exercise of seeking stakeholders’ comments on various likely amendments to the Insurance Act. IRDAI Chairman Debasish Panda has been promoting India’s insurance sector abroad through investment roadshows. All these amendments are likely to be introduced through the Finance Bill, 2025, said sources.
100% FDI in Insurance
A key reform under consideration is an increase in the foreign direct investment (FDI) limit in the insurance sector from 74 per cent to 100 per cent. This change, expected to be introduced through the Finance Bill 2025, marks a continuation of previous reforms: the FDI cap was raised from 26 per cent to 49 per cent in 2015 and further to 74 per cent in 2021.
The proposed increase to 100 per cent FDI aims to fully open India’s insurance market to global investors, paving the way for significant capital inflows.
Roadmap for GST Relief
Another anticipated announcement is likely to come in the form of a roadmap for the reduction in Goods and Services Tax (GST) rates on term and health insurance premiums, currently taxed at 18 per cent. The reform is expected to be implemented under the aegis of the GST Council, ensuring affordability for families across income groups.
Composite Licenses
The government is also likely to unveil a framework for composite licenses, allowing insurers to offer multiple categories of insurance — life, health, and general — under a single license.
This move is expected to enhance operational flexibility, streamline regulatory processes, and foster innovation. Insurers will be better positioned to cater to diverse customer needs, improving their competitive edge in the market.
Value-Added Services
To make insurance more customer-centric, the budget may introduce reforms enabling insurers to offer value-added services. These could include health-monitoring devices bundled with health insurance policies or rewards programs incentivizing healthy behavior and timely premium payments.
Such initiatives align with global trends in personalized insurance offerings, aiming to attract new policyholders and enhance customer retention.
Missing: Selling Financial Products
However, one anticipated reform—the proposal to allow insurance companies to sell other financial products like bank deposits and mutual funds—will likely be absent from this year’s budget. Sources indicate that regulatory challenges and operational complexities have delayed its implementation.
Industry Wish-List
Tapan Singhel, Managing Director & CEO of Bajaj Allianz General Insurance said: “As we approach Budget 2025, it is crucial to implement measures that make insurance more accessible and impactful for individuals and businesses alike. If a GST reduction on health insurance premiums is not feasible, allowing a complete deduction of premiums paid towards health insurance under the existing tax regime would significantly encourage more people to prioritize their health protection”.
Subhrajit Mukhopadhyay, Executive Director, Edelweiss Life Insurance said that the slew of insurance reforms including permissible FDI limit, and reduction in capital requirements likely to be ushered in the Budget will significantly accelerate the growth of the industry and support the government as well as regulator’s financial inclusion agenda. These proposed reforms will be a positive step in facilitating insurance adoption at the last mile and bolster the overall sectoral growth, Mukhopadhyay added.
Prashant Tripathy, MD & CEO of Axis Max Life Insurance said “We recommend a dedicated tax deduction for life insurance policies, particularly term insurance, under Section 80C of the Income Tax Act. This benefit should also be extended under the new tax regime to enhance the social and financial security for a wider segment of the population”.
