As the finance ministry gears up for upcoming Union budget 2025, speculations are under way for announcements that could strengthen India’s financial growth, reforming insurance sector, taxation system and healthcare landscape.
A recent report by the State Bank of India (SBI) suggested that the government should consider increasing the budget allocated for healthcare by 5 per cent of GDP, along with exemption on GST and taxes on term and health insurance premiums. It also called for rationalising GST rates on medical devices by a uniform 5 per cent to 12 per cent.
It further emphasised the need for a major transition in India’s insurance and healthcare industry with tax exemptions, increased public spending, and policy rationalisation, to boost these critical areas.
The report proposed, “No GST/Tax on Term/Pure Life Insurance and health insurance premiums. In line with NPS, a separate deduction for life/health insurance in the new/old tax regime, say Rs 25,000/50,000. All the government-sponsored pension schemes, APY, PM-SYM, PM-KMY, and NPS-Traders may be brought under one umbrella.”
Key highlights from the report
With insurance penetration dipping to 3.7 per cent in FY24 against 4 per cent in FY23 and 4.2 per cent in FY22, the report reminds the Insurance Regulatory and Development Authority of India’s (IRDAI) mission of “Insurance for All by 2047.”
Life insurance penetration has dropped sharply to 2.8 per cent, while non-life insurance remains stagnant at 1 per cent.
The government should encourage more individuals to invest in these essential covers by exempting GST and taxes on term and health insurance premiums. Moreover, it should include a separate tax deduction for life and health insurance premiums, falling under both, the old and new tax regimes, from the range of Rs 25,000- Rs 50,000 to further push the policy adoption.
- Government pension schemes and MSMEs
The report also calls for the integration of government-backed pension schemes, such as the Atal Pension Yojana (APY) and Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM), under a unified framework to improve accessibility and effectiveness.
It recommends special insurance schemes for MSME employees and their promoters to safeguard families and businesses against unforeseen losses.
- Healthcare fund allocation
In healthcare, the report advocates raising the public healthcare budget to 5 per cent of GDP, exceeding the 2.5 per cent target set by the National Health Policy 2017. It suggests funding this increase through a proposed 35 per cent GST on tobacco and sugary products and proceeds from the healthcare CESS.
Additionally, rationalising GST rates on medical devices to a uniform 5 per cent – 12 per cent from the current 5 per cent-18 per cent range could reduce costs and simplify compliance, easing the burden on manufacturers and distributors.
These measures, according to the report, are crucial for addressing India’s growing healthcare needs and nurturing social security. With strategic reforms, India can strengthen its insurance and healthcare infrastructure, promoting economic stability and improved well-being for its citizens.
