MUMBAI: Indian life insurers have asked the government to double the tax-free limit for insurance policies from 500,000 rupees ($5,232), hoping for a boost to inflows into these funds, three sources directly aware of the matter said.
New tax limits were imposed in February 2023, applicable to all insurance schemes except unit-linked insurance plans (ULIPs). Since then, inflows into non-ULIP schemes have risen a modest 2% and 5% for fiscal years 2024 and 2025, respectively. This is sharply lower than the 13% and 18% growth in the previous two years, data showed.
The flows for fiscal 2026 grew 16%, largely due to a reduction in the goods and services tax.
Stronger inflows into such funds will boost demand for ultra-long bonds - which these funds heavily invest in - at a time when the federal and state governments' supply has risen, the sources said, declining to be identified as they are not authorised to speak to the media.
Similar requests had been made after new tax limits were imposed.
The Life Insurance Council and the Insurance Regulatory and Development Authority of India did not reply to a Reuters email seeking comment.
Slower inflows have curbed demand for longer-maturity debt, along with pushing up yields on 30-year and above maturity papers, faster than the 10-year note.
The Indian government has reduced the share of ultra-long bonds in April-September borrowing to 25%, sharply lower than 30% for the second half of fiscal 2026 and 35% for the preceding six months.
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, according to traders.
"Increasing the tax exemption limit is a necessary first step to unlock the deep pool of long-term capital required to anchor India's fiscal expansion," said Arun Srinivasan, chief - fixed income, ICICI Prudential Life Insurance.
"Implementing this measure will incentivise long-term retail and institutional savings, offering critical domestic support for the state's ultra-long-term borrowing needs," he said.
The appeal was made via a letter from the Life Insurance Council, a forum which represents insurers, to the government earlier this month, the sources said.
