The Indian government should make pensions tax free so that the pension penetration is higher, says a top insurance industry official.

Ageas Federal Life Insurance CEO and MD Vighnesh Shahane also said the government should also make the maturity amount under unit linked insurance policies (ULIP), where the annual premium is Rs 2.5 lakh or more, tax free.

"To increase the penetration of pension and to make India a pension society, especially since we don't have any social security cover, our request is to make pensions tax-free in the hands of the customer because the pension premium is already paid through taxable income," he said.

The proceeds of the pension/annuity should be made tax-free in the hands of the customer or to allow deduction for the principal component, he added.

Listing out other budget wish list, Shahane said there should be a higher deduction limit in the case of health insurance premium under Section 80D of the Income Tax Act while the current limit is only Rs 25,000.

He said the Section 80C of the Income Tax Act is cluttered with various investment options for tax benefits, and there should be a separate section for life insurance or the limit be increased from Rs 1.5 lakh to Rs 2.5 lakh.

At least a separate section for term life insurance policies would be helpful given the huge protection gap in the country, Shahane added.

"We recommend zero-rated GST for protection products as 18 per cent GST mak es the term plans costlier. To increase insurance penetration in the country, the basic protection plans should be made available under zero-rated GST," he said.

Raising the tax deducted at source (TDS) exemption limit on insurance commission (under section 194 D of the Income Tax Act) from the current level of Rs 15,000 would provide a greater impetus to insurance agents, Shahane added.