Budget 2024: Insurers anticipate tax reforms in health insurance

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New Delhi: As the cost of medical treatment soars high, health insurance is necessary for everyone. The government is currently offering a tax exemption on health insurance premiums. This will help sensitise more people to secure this essential cover. However, this exemption is exclusively available to those who opt for the old tax regime. The Modi 3.0 government is set to reveal the budget on July 23 amid high expectations. There is anticipation among the general public, that Finance Minister Nirmala Sitharaman will expand tax relief on health insurance premiums this time.

The driving force behind this urgency is inflation. As it is significantly impacting healthcare costs in India, escalating at nearly three times the rate of general inflation. Recent government statistics reveal that retail inflation surged to 5.08 percent in June. While healthcare inflation has consistently hovered around 15 % for an extended period. This places India’s healthcare inflation rate among the highest in Asian countries.

Healthcare inflation over the years

Insurance companies have raised health insurance premiums by over 25 %. However, the tax deduction limit under Section 80D of the Income Tax Act for health insurance premiums has remained unchanged for nearly a decade. Consequently, health insurance providers have urged the government to raise the Section 80D limit.

The taxpayers can avail themselves a tax deduction under Section 80D for payments towards health insurance premiums. This includes premiums paid for self, spouse, children, and parents’ health insurance. Individuals under the age of 60 can claim a tax deduction on premiums up to Rs. 25,000 annually for themselves, spouse and children. For senior citizens aged 60 and above, the tax deduction limit extends up to Rs. 50,000 annually for premiums paid for health insurance.

Experts advocate to expand health insurance coverage across the country, fiscal incentives related to taxes must be amplified. The most effective strategy would be to link the tax deduction limit on health insurance premiums with inflation, ensuring automatic adjustments annually or at regular intervals. Additionally, tax exemptions should be extended to health insurance premiums under the new tax regime as well.

High time for tax deduction benefits on health insurance?

Industry leaders argue that the government should consider granting tax deduction benefits on the entire health insurance premium under Section 80D of the Income Tax Act. Such a step would encourage more individuals to purchase comprehensive health coverage, particularly benefiting senior citizens who have seen substantial increases in health insurance premiums. Increased access to health insurance would alleviate pressure on government hospitals, reducing patient influx significantly. Therefore, the insurance sector remains hopeful that the government will increase the tax deduction limit on health insurance premiums in the upcoming budget.

Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance, suggests that the upcoming budget should include measures such as fixed rates for employee health insurance, reduced GST rates on health insurance premiums, and enhanced exemptions under Section 80D. These reforms would enhance affordability and accessibility of health insurance. Furthermore, removing the cap on tax deductions for health insurance premiums for senior citizens would significantly ease their financial burden.

Currently, health insurance premiums attract an 18 % GST. Various organizations, including the insurance sector, have been advocating for a reduction in this rate. The decision on GST rate reduction rests with the GST Council. Nonetheless, stakeholders are optimistic that Finance Minister Nirmala Sitharaman will introduce measures in the budget aimed at expanding the reach of health insurance coverage.