Union Budget 2026: Building India’s financial security architecture

By Sumit Madan The Union Budget 2026 arrives at a defining juncture of India’s ascent, where progress must be measured not merely by the velocity of our growth, but by the resilience of the nation’s foundation. Over the past few decades, India has undergone a historic transformation, scaling from a $1 trillion economy to a global powerhouse through massive, sustained investments in physical and digital infrastructure. Yet, as the nation targets the $5 trillion milestone and beyond, we must recognize that swift economic expansion without robust household financial security is inherently fragile. As India enters this next chapter of growth, life insurance must be positioned as a national priority and a strategic pillar that transforms prosperity into permanence and shields the aspirations of a billion-plus people from the headwinds of uncertainty.The Resilience Gap: Why Household Security Matters NowFor a “Viksit Bharat” to endure, national success must be measured by the financial resilience of Indian families. However, recent data signals a dual vulnerability where according to the Economic Survey 2024-25, India’s gross domestic savings as a percentage of GDP fell from 31.2% in 2021-22 to 30.2% in 2022-23 (First Revised Estimate). This decline in savings is mirrored by a stagnation in financial protection, leaving households exposed. This downward shift is more than just a statistic, and signals an impending vulnerability in the nation’s financial foundation. To address this, the Union Budget 2026 must serve as a critical demand-side engine to rebuild this foundation through a two-pronged fiscal strategy. First, to bolster overall household savings, a comprehensive overhaul of Sections 80C, 80CCC, and 80CCD is required, featuring higher, inflation-indexed limits.As it stands, India’s total sum assured as a percentage of GDP stands at just 24%, a stark contrast to Singapore (332%) or Malaysia (153%). Consequently, India’s protection gap remains the highest in the region at 83%, compared to just 55% in Singapore.Hence, to specifically bridge this protection gap, the government should introduce a dedicated tax deduction for pure term insurance premiums, independent of the current ₹1.5 lakh limit of Section 80C. By establishing an exclusive incentive similar to Section 80D’s treatment of health insurance, the Budget can elevate life protection from a discretionary expense to a fundamental pillar of financial planning, ensuring a secure household base for a developed India.India’s Impending Challenge: Ageing with DignityDespite rising disposable incomes, a significant share of Indian households, especially those dependent on a single breadwinner, remains one income shock or medical emergency away from financial distress. The need for reform is made more urgent by a looming demographic shift: India is set to age faster than it grows rich. By 2050, one in five Indians will be over the age of 60, yet retirement preparedness continues to lag behind aspiration. Addressing India’s impending demographic and financial challenges requires moving beyond fragmented, legacy frameworks. The Union Budget 2026 should create a dedicated tax bucket for annuities and pension products, recognizing retirement planning as a non-negotiable social necessity. Crucially, this reform must create parity with the National Pension System (NPS), ensuring that all pension-linked instruments benefit from a level playing field to encourage long-term disciplined saving.Central to this overhaul should be the inclusion of annuities under Section 10(10D) as tax-exempt instruments. Currently, Section 10(10D) explicitly excludes retirement payouts, treating annuity income as taxable at the individual’s slab rate, which creates a significant deterrent to retirement security. Granting tax-free status to these payouts will ensure protection remains meaningful in an evolving economy. By aligning the annuity tax treatment, India’s financial architecture can evolve into a credible social security platform, shifting life insurance from a discretionary purchase to an essential safety net. From Reform to Execution: Making Policy Work for HouseholdsTo deliver these targeted solutions at scale, the regulatory framework must undergo a commensurate evolution. The government’s recognition of life insurance as an essential service under the GST framework is a progressive measure that serves as a vital precursor to the sector’s overarching reform. This fiscal alignment effectively anchors the Sabka Bima Sabki Raksha Bill 2025, which has already established the strategic direction for universal coverage. To translate this vision into impact, the upcoming Union Budget 2026 must now provide a concrete execution roadmap, formalizing the transition toward 100% FDI while ensuring robust governance remains paramount.Furthermore, there is significant anticipation for a clear roadmap regarding Composite Licensing. By enabling a “one-stop-shop” model integrating life and health insurance, the industry can lower distribution costs and simplify the consumer journey, fostering a more holistic protection ecosystem for all Indians.Today, it is time to recognize life insurance as a vital fiscal stabilizer, with the Union Budget 2026 representing an opportunity to institutionalize financial security as a national priority. Together, policymakers and the industry can ensure that by 2047, every Indian household stands protected.(Sumit Madan is Managing Director and CEO, Axis Max Life Insurance)