Budget Expectations: Insurance Sector Hopes For Reduction Of GST On Health Insurance Premium

Prioritizing insurance accessibility in rural areas would enable underserved populations to benefit from essential coverage. These reforms will enhance affordability for the middle class and encourage greater retirement savings resulting in wider adoption of insurance products across demographics

The insurance sector is hopeful of a reduction of GST on health insurance premium in the forthcoming Union Budget. This will ensure that insurance is accessible to a wider audience, while also stimulate growth and innovation within the industry.

Health insurance has emerged as a crucial safety net for Indian families, shielding them from unexpected medical expenses. According to a IBEF report, India is the fourth largest general insurance market in Asia and the 14th largest globally. Data from IRDAI’s annual reports reveals that health insurance has grown steadily at 25 per cent annually over the past three years, highlighting its importance in protecting households.

As the country advances towards financial inclusivity and universal healthcare, Budget 2025 offers a pivotal opportunity to further strengthen the health insurance sector.

Talking to Bizz Buzz, Naveen Chandra Jha, MD and CEO of SBI General Insurance, says, “The anticipated policy measures include enhancing accessibility, simplifying tax benefits, and encouraging innovation in insurance products. Initiatives such as Bima Sugam, designed to achieve the goal of ‘Insurance for All’ by 2047, are expected to receive regulatory and fiscal support to address the protection gap.”

Additionally, the budget is likely to focus on expanding access in underserved regions through government-private partnerships, targetted subsidies and advancements in digital infrastructure. By fostering conducive ecosystem, Budget 2025 can empower insurers to contribute to a healthier, more secure India, aligning with the vision of a Viksit Bharat, he said.

With the Union Finance Minister Nirmala Sitharaman presenting the Union Budget in a few days, the health insurance sector stands at a pivotal moment where policy reforms could significantly transform the landscape of healthcare accessibility and coverage in India. Srikanth Kandikonda, CFO of ManipalCigna Health Insurance says, “Healthcare costs are rising significantly and they are expected to double in six years. Hence, we urge the government to implement measures that can help make healthcare more affordable for all Indians.”

For a healthier Bharat, the healthcare spend outlay has been proposed to be increased to 2.5 per cent of the GDP by 2025 as per the National Health Policy. While India’s out-of-pocket expenditure has seen a decline from 64.2 per cent 2013-14 to around 40 per cent in 2021-22 as per the national health accounts estimate, we are still working towards our mission of achieving Universal Health Coverage. Therefore, we request the government to increase outlay for public healthcare spend in this budget, as this is the need of the hour, he said.

Given the rising healthcare costs and the need for higher sum insured cover, the government should reduce tax burden by increasing the limits under Section 80D of income tax for premium paid for health insurance to Rs. 50,000 for all and Rs one lakh for senior citizens. This is crucial for achieving the government's 'Insurance for all by 2047’ vision. Moreover, this would substantially reduce the financial burden on families investing in their health and financial wellbeing.

Gaurav Parasrampuria, CFO, Magma General Insurance, says, “In the upcoming Union Budget, we remain optimistic about the government’s commitment to encouraging the insurance sector. We expect measures aimed at increasing insurance penetration, such as tax incentives for policyholders under section 80D and initiatives to reduce GST on health insurance premiums while retaining the benefit of input tax credit for the industry.”

Dhirendra Mahyavanshi, co-founder and CEO of Turtlemint, says, "We commend the Government and IRDAI for their initiatives to strengthen the insurance sector, aligning with the vision of achieving 'Insurance for All by 2047.' In the upcoming Union Budget, reconsidering the 18 per cent GST on health insurance policies and introducing tax relief measures for annuity and pension products could play a pivotal role in advancing financial inclusion and security.”

Prioritizing insurance accessibility in rural areas would enable underserved populations to benefit from essential coverage. These reforms will enhance affordability for the middle class and encourage greater retirement savings resulting in wider adoption of insurance products across demographics.

Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance says, “A key expectation is the introduction of a separate tax exemption for term insurance. With term insurance gaining popularity as a cost-effective way to secure substantial life coverage, a distinct tax exemption limit could incentivize more individuals to adopt it, thus reducing the protection gap and ensuring financial security for families.”

Another pressing issue is the affordability of insurance products. The existing 18 per cent GST on premiums acts as a deterrent, particularly for low-income groups. A reduction in the rate will make insurance products more affordable, directly benefiting policyholders and increasing insurance penetration, he said.

While the GST Council has deliberated on this matter, a favourable decision in the budget would be a game-changer for the sector.

Additionally, the taxation framework for annuity products needs revisiting. Although the initial investment in an annuity is tax-exempt, the annuity income is taxable, discouraging investments in retirement-focused products. Aligning the tax treatment with the product’s purpose would encourage retirees to secure their financial future.

Similarly, the insurance industry has been requesting to carve out the insurance premium paid for life from the existing limit of Rs. 1.5 lakh available under section 80 C into a separate section. This would provide greater incentive to individuals to adequately take cover.

These measures can collectively enhance the sector’s growth and ensure wider financial inclusion.