• The budget has allowed foreign investment in the insurance and pension sectors in the automatic route up to 49% subject to the extant guidelines on Indian management and control to be verified by the regulators.
• Public shareholding in Government-owned companies is a means of ensuring higher levels of transparency and accountability. To promote this objective, the general insurance companies owned by the Government will be listed in the stock exchanges.
• The budget proposed to reduce service tax on single premium annuity (insurance) policies from 3.5% to 1.4% of the premium paid in certain cases.
• Service tax on service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) being exempted, with effect from 1 April 2016.
• Service tax on the services of general insurance business provided under ‘Niramaya' Health Insurance scheme launched by National Trust for the Welfare of Persons with autism, cerebral palsy, mental retardation and multiple disability being exempted, with effect from 1 April 2016. Service tax on services provided by Insurance Regulatory and Development Authority of India (IRDA), being exempted, with effect from 1 April 2016.
• The Government will launch a new health protection scheme which will provide health cover up to Rs 1 lakh per family. For senior citizens of age 60 years and above belonging to this category, an additional top-up package up to Rs 30000 will be provided.
• Pension schemes offer financial protection to senior citizens, so the tax treatment should be uniform for defined benefit and defined contribution pension plans. Accordingly its proposed to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme.
• Service tax exempted from the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees.
• The infrastructure cess of 1-4% is proposed to be imposed on various cars, which is negative as motor insurance segment accounts for close to 40% of their premiums.

Outlook

The Union Budget 2016-17 has allowed 49% FDI in insurance and pension sector via automatic route, which was earlier allowed up to 26% through automatic route and for additional FDI up to 49% FIPB approval was required. The insurance sector has also been offered various service tax sops, while tax exemption for withdrawal up to 40% of NPS corpus would give it a required boost.