Indian life insurers have formally requested the government to double the tax-free limit for insurance policies from ₹5 lakh to ₹10 lakh, according to reports from The Economic Times, Business Standard, and The Hindu BusinessLine. This move aims to increase money flowing into insurance funds, which have experienced slower growth since new tax limits were introduced in February 2023. The Life Insurance Council made this appeal via a letter to the government earlier this month, representing insurers' collective push for policy changes. As per Business Standard, the appeal was made via a letter from the Life Insurance Council, a forum which represents insurers, to the government earlier this month. The request was confirmed by three sources directly aware of the matter to The Hindu BusinessLine, who declined to be identified as they are not authorized to speak to the media.
Since the new tax limits were imposed in February 2023, inflows into non-ULIP schemes have shown modest growth of 2% for fiscal 2024 and 5% for fiscal 2025, as reported by The Economic Times, Business Standard, and The Hindu BusinessLine. This represents a sharp decline from the 13% and 18% growth recorded in the previous two years. However, flows for fiscal 2026 grew 16%, largely attributed to a reduction in goods and services tax. The tax exemption limit applies to all insurance schemes except unit-linked insurance plans (ULIPs).
Stronger inflows into insurance funds would boost demand for ultra-long bonds, which these funds heavily invest in, according to sources cited by The Economic Times, Business Standard, and The Hindu BusinessLine. This comes at a time when the federal and state governments' supply of ultra-long bonds has increased. Slower inflows have curbed demand for longer-maturity debt, pushing up yields on 30-year and above maturity papers faster than 10-year notes. The Indian government has reduced the share of ultra-long bonds in April-September borrowing to 25%, down from 30% for the second half of fiscal 2026 and 35% for the preceding six months. According to traders cited by Business Standard, it would be difficult to maintain supply at this level, and the government will have to increase it to at least 30% in October-March.
Arun Srinivasan, chief fixed income at ICICI Prudential Life Insurance, emphasized that increasing the tax exemption limit is a necessary step to unlock long-term capital for India's fiscal expansion, as reported by The Economic Times, Business Standard, and The Hindu BusinessLine. He stated that implementing this measure will incentivize long-term retail and institutional savings, offering critical domestic support for the state's ultra-long-term borrowing needs. The Life Insurance Council and the Insurance Regulatory and Development Authority of India did not respond to requests for comment on the matter.
