The Union Budget 2025-26 has made bold moves in reshaping India’s insurance sector and income tax regime, ensuring broader financial inclusion, economic growth, and relief for individuals and businesses alike. With an ambitious push towards ‘Insurance for All by 2047’, the government is not just tweaking policies but laying the foundation for a stronger, more resilient financial ecosystem.
 |
Sanjiv Bajaj, Jt. Chairman & MD, BajajCapital
Here’s a deep dive into the biggest takeaways from the budget-and why they matter to you.
Insurance Sector Reforms: A Giant Leap Toward Inclusion
For years, India’s insurance penetration has lagged behind global standards. This year’s budget takes a transformative approach to change that, especially in rural areas and microinsurance markets.
1. Bigger Foreign Investments in Insurance: The government has increased the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100%, ensuring greater capital inflow, innovation, and competitive pricing in the industry. This move is expected to attract billions in foreign investment, strengthening the Indian insurance market.
2. Massive Tax Benefits for Micro & Rural Insurance: To make insurance more affordable and accessible, the budget introduces tax exemptions and GST cuts:
100% Tax Deduction on premium income for insurers offering microinsurance (Rs. 2 lakh cover or below) in rural areas
GST Slashed to 0% for small-ticket life, health, and general insurance policies in rural regions (previously 18%)
ADVERTISEMENTHigher Tax Deductions for Rural Policyholders:
ADVERTISEMENTAdditional Rs. 50,000 deduction under Section 80C for policyholders in rural areas
Rs. 25,000 extra deduction under Section 80D for health insurance
3. Direct Government Subsidies to Reduce Premiums: The government is taking bold steps to financially support policyholders:
Viability Gap Funding (VGF): Government will cover 30-50% of premium costs for life, health, and crop insurance
Interest-Free Loans: Insurers expanding to rural India can avail 0% interest loans
Premium Support for New Policyholders: First-time microinsurance buyers will receive Rs. 1,500 as a government subsidy per policy
4. Revamped & New Government Insurance Schemes: Major insurance programs have expanded their coverage:
PM Jeevan Jyoti Bima Yojana (PMJJBY) & PM Suraksha Bima Yojana (PMSBY):
Premium slashed by 20% for Below Poverty Line (BPL) families
Coverage increased from Rs. 2 lakh to Rs. 3 lakh
Kisan Suraksha Bima Yojana (NEW): Life & health insurance for farmers at subsidized rates
Crop Insurance Expansion (PMFBY): 60% premium subsidy for small & marginal farmers, now covering post-harvest losses due to climate change
5. Digital & Distribution Boost for Rural Insurance: Technology is being leveraged to bridge the insurance gap:
One-Stop Digital Insurance Platform‘ for easy access & claim processing
Common Service Centers (CSCs) to serve as rural insurance enrollment hubs
Higher Commission for Rural Insurance Agents (30% increase) to drive deeper market penetration
6. Special Focus on Women & Gig Workers
Mahatma Gandhi Women Insurance Scheme: Rs. 5 lakh life & health cover for self-help group (SHG) members
Interest-Free Microloans for women buying insurance
Gig Workers’ Insurance: Delivery agents, drivers, and farm laborers to receive government-backed accident & life insurance
The Expected Impact
Insurance penetration to rise from 25% to 50% in rural India by 2030
Lower insurance costs for individuals, farmers, and small businesses
Stronger financial security against health, accident, and livelihood risks
Income Tax Reforms: More Money In Your Pocket
This year’s budget puts more cash in the hands of individuals and businesses, simplifying the tax system while offering major relief to the middle class and MSMEs.
1. Revised Tax Slabs: Lower Rates for Higher Savings
The government has slashed tax rates, offering much-needed relief to taxpayers.
Income Range (Rs.) | Old Tax Rate | New Tax Rate (2025-26) |
0 – 3 lakh | Nil | Nil |
3 – 7 lakh | 5% | 5% (with rebate u/s 87A) |
7 – 10 lakh | 10% | 10% |
10 – 15 lakh | 15% | 12.5% (reduced) |
15 – 20 lakh | 20% | 18% (reduced) |
Above 20 lakh | 30% | 25% (reduced) |
Effectively, income up to Rs. 7 lakh remains tax-free under the new tax regime.
Middle-class earners will save significantly with these rate cuts.
2. Standard Deduction & Tax Rebates Increased
Standard Deduction for Salaried Individuals increased to Rs. 60,000 (was Rs. 50,000)
Rebate u/s 87A increased to Rs. 7 lakh (was Rs. 5 lakh)
3. Relief for Home Buyers & Renters
HRA Deduction increased by 25% for salaried employees
Interest Deduction on Home Loan (Section 24B) raised to Rs. 3 lakh (was Rs. 2 lakh)
4. Major Benefits for Startups & MSMEs
Corporate tax rate for new MSMEs reduced to 15% (was 22%)
Tax holiday for startups extended till 2027
5. Digital Taxation & Compliance Made Easier
No penalties on minor GST filing errors for small businesses
Tax Refund Processing within 15 days for online IT returns
Faceless Tax Assessment further simplified
The Big Picture: Why This Budget is a Game Changer
This year’s budget is not just about policy changes-it’s about empowering millions of Indians.
Lower tax burden means more disposable income for individuals
Affordable insurance ensures financial protection for rural India
MSMEs & startups get major tax relief, fueling entrepreneurship
Simplified tax processes make compliance easier for businesses
This is not just a budget-it’s a blueprint for a financially stronger, more inclusive India.
