Budget 2026: Government should consider extending Section 80D benefits to new tax regime, says SBI Research

Budget 2026: Government should consider extending Section 80D benefits to new tax regime, says SBI Research

Government should consider extending benefits of Section 80D to the new tax regime, a move that could significantly improve affordability and encourage first-time buyers to opt for insurance products, SBI Research said in a report titled Prelude to Union Budget 2026-27.

India’s insurance penetration slipped to 3.7% in FY25, down from 4% in FY23 and 4.2% in FY22, data compiled by the insurance regulator IRDAI showed highlighting fresh challenges for policymakers as they push towards IRDAI’s ambitious goal of ‘Insurance for All by 2047’.

Data from the insurance regulator shows that the decline was driven almost entirely by life insurance penetration, which fell to 2.7%, while non-life insurance remained stagnant at 1%.

The slowdown has raised red flags within the government and the regulator, particularly at a time when rising healthcare costs, climate risks and demographic shifts demand deeper insurance and pension coverage, SBI Research said.

One of the key expectations of SBI Research is enhanced tax support for insurance products. Industry participants are hopeful that the government may introduce a separate deduction for term and health insurance, on the lines of Section 80CCD(1B) for NPS, with limits of ₹25,000–₹50,000.

With penetration still low in semi-urban and rural India, the government is expected to back digitisation and alternative distribution channels. Digital platforms, ecommerce ecosystems and bancassurance are emerging as preferred models to expand reach, lower costs and improve customer experience. Policy support to ease regulations around digital onboarding and cross-selling could feature in the Budget, SBI Research said.

Alongside insurance, the government is also expected to focus on pension reforms as India undergoes a demographic transition.

Despite the launch of the Unified Pension Scheme (UPS) on April 1, 2025, enrolment remains muted—only about 1.2 lakh out of nearly 24 lakh central government employees have opted in. The Budget may look at expanding UPS to state government and PSU employees to improve adoption.

Similarly, the NPS Vatsalya scheme, launched in September 2024, has attracted just 1.3 lakh subscribers till August 2025. A higher deduction limit under Section 80CCD(1B) for NPS contributions is seen as a key lever to boost participation, SBI Research added.