Budget 2025: Insurers Call For Tax Relief, GST Cuts To Make Policies Affordable

The insurance industry has listed out its demand from the government ahead of the announcement of the Union Budget 2025-26. The demands are more or less the same as the previous budget. They have pinned high hopes for change amid talks of the Insurance Amendment Bill seeing the light of day during the upcoming budget session.

Finance Minister Nirmala Sitharaman will present the Union Budget 2025 on February 1. The insurers have placed high expectations for reforms that could make policies that would make insurance more accessible and affordable for the growing customer base.

As healthcare costs escalate, people are becoming more aware of insurance as a much-needed financial tool to safeguard their families against unforeseen events. Insurance penetration is expanding across all key areas, from health to property, but is also becoming increasingly unaffordable amidst the growing inflation.

What Are The Top Asks Of Insurance Industry?

From increased tax deductions to lower GST rates, insurers are hopeful that the upcoming budget will usher in changes to encourage greater penetration and provide much-needed financial relief to policyholders.

1) Tax Deductions, the Top Demand

Let’s talk about health insurance premiums. Right now, under Section 80D of the Income Tax Act, you can claim deductions, but the limits haven’t changed in years. Healthcare costs, on the other hand, have soared.

“An increase in the deduction limit under 80D is overdue,” says Anand Roy, MD and CEO of Star Health and Allied Insurance. “Raising it to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens would make a huge difference, especially for older people who face higher medical costs.”

There’s another issue too. The current tax benefits are only available under the old tax regime. Insurers are urging the government to extend these benefits to everyone, regardless of their chosen tax system. It’s a simple move that could encourage more people to buy health insurance, Roy noted.

2) Revising Rule 6E for Premium Reserves

Rule 6E is a method that determines how insurance companies calculate the money they must set aside (put in reserve) for policies that are still active but have not reached their full term.

Roy has urged changes to Rule 6E for Premium Reserves which currently permits only 50 per cent reserve calculations for unexpired premiums.

“Adopting the 1/365 method, as recommended by the Insurance Regulatory and Development Authority of India (Irdai), would provide a more accurate and modern approach to calculating premium reserves. This change would enhance the financial stability of insurers and build trust in the sector,” he suggests.

2) The GST Hurdle

Then there’s the matter of GST. Right now, there’s an 18 per cent tax on insurance premiums, and that’s a big deterrent for middle- and low-income families. “Reducing the GST rate would be the most direct way to make insurance more affordable,” said Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance.

But insurers are also realistic. If slashing GST isn’t an option, Singhel suggested an alternative: allowing people to fully deduct their health insurance premiums under the existing tax regime. “This would encourage more people to prioritise their health protection,” he says.

3) Getting Businesses on Board

Insurers are also keen to see changes that would motivate companies to insure their employees. One idea that’s gaining traction is to allow businesses to claim Input Tax Credit (ITC) on the health insurance premiums they pay. It’s a win-win: employees get coverage, and employers get some financial relief.

“This could extend insurance to millions of workers who are currently uninsured,” Singhel pointed out. It’s not just about helping employees; a healthier workforce ultimately benefits the economy too.

4) Reforming the Sector for the Future

Regulatory changes are also on the wishlist. Says Ravi Bhadani, Partner at SNG & Partner Advocates & Solicitors, "Policy measures like increasing the FDI limit to 100 per cent, reducing the NOF (Net Owned Fund) requirement to Rs 50 crore, introducing composite licenses for insurers, and enabling an open architecture for individual agents can foster greater competition, innovation, and efficiency in the sector."

These changes could make the industry more efficient and consumer-friendly.

5) The Healthcare Cost Problem

Healthcare expenses are rising fast - so fast that they’re expected to double in just six years. According to Srikanth Kandikonda, CFO of ManipalCigna Health Insurance, this makes insurance more critical than ever.

He pointed out that India’s out-of-pocket healthcare spending has dropped significantly, from 64 per cent in 2013-14 to around 40 per cent in 2021-22. “But we still have a long way to go to achieve Universal Health Coverage. Increasing public healthcare spending and making insurance more accessible are key steps,” he said.

Kandikonda also echoed the call for higher tax deductions. “Raising the 80D limit to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens is essential. It would reduce the financial burden on families while helping achieve the government’s vision of ‘Insurance for All by 2047,’” he said.

6) A Vision for Inclusivity

Initiatives like Bima Sugam, a digital platform aimed at simplifying insurance access—are part of this broader vision. Naveen Chandra Jha, MD and CEO of SBI General Insurance, believes the budget could provide much-needed support for such initiatives.

“Bima Sugam has the potential to close the protection gap, especially in underserved areas,” Jha said. With the right mix of government support, private sector innovation, and targeted subsidies, he believes India can take a big step toward its goal of financial inclusion.

The Bottom Line

From higher tax benefits, and lower GST rates, to policy reforms, these changes are the insurance industry’s sought-after demands that could bring impactful changes for policyholders.

As Singhel put it, “This budget is an opportunity to make insurance more impactful for individuals and businesses. It’s about protecting people, supporting growth, and building a stronger, more resilient India.”

Everyone, from insurers to policyholders, will be watching closely as Finance Minister Sitharaman takes the podium on February 1. Will the budget deliver the much-needed relief and reforms the sector is hoping for?