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Modi Government Introduces Major Tax Relief in Budget 2025

Banking and Insurance

Business Honor
12 March, 2025

Budget 2025: Major Tax Cut’s Boost Middle-Class Savings, Reshape Insurance Industry Strategies and Growth

The Modi administration has presented its maiden full-fledged budget for its third term as a coalition government with a special emphasis on reactivating India's inactive economic growth. One major feature of this year's budget is the huge tax relief to the middle class.

Finance Minister Nirmala Sitharaman declared major tax reductions under the new tax regime, exempting income of up to ₹12 lakh from tax. This will lead to a revenue loss of ₹1 lakh crore in direct taxes and ₹2,600 crore in indirect taxes. The budget also provided relief for higher-income earners, with those who earn ₹25 lakh per year getting a tax cut of ₹1,10,000, while those who earn ₹18 lakh will get a relief of ₹70,000.

Yet, these tax reforms might have significant implications for the insurance industry. Without tax savings as the key motivator, middle-class investors might be less likely to buy life insurance policies. Experts say this change will likely make insurance companies come up with new ways to attract customers.

Vibha Padalkar, MD & CEO, HDFC Life Insurance, mentioned that although tax benefits have traditionally driven insurance buying, their relevance has reduced. She added that people now have more comprehensive financial objectives, with long-term security taking precedence over tax benefits. In a fluctuating market, most view life insurance as a secure investment, considering the risks involved in reinvestment. Section 80C is also competitive with other options such as provident funds, equity mutual funds, and savings schemes.

Notwithstanding the apprehensions, the life insurance sector clocked an 11% YoY growth in premiums during the first 11 months of FY25, with the Total Annualized Premium Equivalent (APE) going up 8% and retail APE up by 2%. The sector experienced a 12% YoY drop in premiums in February, while private insurers witnessed a 3% growth during the same time.