Budget 2025: What To Expect For Health Insurance

It is that time of year! With Budget 2025 to be presented shortly, all eyes are on the finance minister Nirmala Sitharaman. As in other sectors, there are many expectations regarding insurance, including key reforms.

Alok Rungta, MD & CEO, Future Generali India Life Insurance, says, “As we approach the upcoming budget, it is imperative to prioritize reforms that make insurance more accessible and appealing to the masses. Life insurance is vital for financial security and economic stability, yet India’s life insurance penetration stands at only 3.2 per cent of GDP (2022), below the global average of 3.7 per cent. Reforms are essential to achieve the vision of 'Insurance for All' by 2047.” 

We take a look at the key expectations regarding insurance in the budget. 

Reduction In GST: There has been a lot of debate on this, but there were no changes announced in the last GST council meeting. “Affordability remains a significant challenge for low-income groups when it comes to insurance products. The current GST rate of 18 per cent on insurance premiums has often acted as a deterrent. Lowering this rate would directly benefit policyholders, making insurance both more accessible and affordable.” says Rajiv Gupta, president, PB FINTECH. 

Right now, that very high GST seems like a huge amount, adding to the obstruction as individuals attempt to get proper priority coverage. However, suppose this tax rate is reduced. 

Says Pankaj Nawani, CEO, CarePal Secure, “This will provide avenues to affordable health insurance policies, allowing families to get protection without straining their meager budgets. A system that classifies and rationalizes GST, with specific products such as, say, micro-insurance or digital health coverage, being given a lower tax rate or zero tax, would become very huge.” 

100 Per Cent FDI: There have also been reports that FDI in the insurance sector would be raised to 100 per cent. Currently, it stands at 74 per cent. In November 2024, the finance ministry proposed this as well. 

“There should also be a push towards liberalized FDI limits in the insurance sector to 100 per cent. This will help to attract more foreign capital, enhance underwriting capacity, and foster innovation through global partnerships,” says Sumit Bohra, president, Insurance Brokers Association of India (IBAI). 

Raising Deduction Limit Under 80D

Currently, section 80D allows a tax deduction of up to Rs 25,000 per financial year on medical insurance premiums for non-senior citizens and Rs 50,000 for senior citizens.

“The industry advocates for raising the health insurance deduction limit under Section 80D to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens. Additionally, introducing tax exemptions for contributions to Health Savings Accounts could help individuals better manage rising healthcare expenses,” says Gupta. 

According to Bohra, a separate section, apart from sections 80D and 80C, should be created for deducting or exempting insurance policies that cover health insurance, personal accident insurance, home insurance, and life insurance. This deduction request for exemption for insurance policies should also be part of the new tax regime. 

This is key, as the government is currently looking to shift to the new tax regime, and it is unlikely that they will increase deductions that are available only under the old tax regime. 

Encouraging Start-Ups And Focus On Technology: Help offered to start-up companies is another big wish of the InsurTech industry. Through subsidies for research, easier sources of funding, and tax subsidies for investors, it might develop into a growth business that changes people's lives. “Encouraging start-ups ensures encouraging innovation as the downside of this evolution is that the insurance landscape keeps pace with changing requirements,” says Nawani. 

“The sector is also anticipating better tax credits that will make it easier for companies to invest in new technologies such as cloud computing, data analytics, and artificial intelligence, to trim down the whole process and make it quicker, a tad more user-friendly,” he adds.