In the upcoming budget, the insurance sector has asked the government to consider a few reforms, including a reduction in GST rates on insurance premiums and a change in tax exemptions on health insurance. These changes are intended to make insurance more affordable and accessible to the larger population while addressing India's increasing healthcare and retirement challenges.
Among the primary requests from the sector is a reduction in GST rates on insurance products, currently set at 18%. The Insurance Regulatory and Development Authority of India (IRDAI) has been in talks with industry stakeholders on this matter and many have been advocating for a GST reduction to 12%. The move is also expected to make insurance policies more affordable and encourage broader insurance adoption.
The industry has also pointed out the need to amend tax exemptions under Section 80D of the Income Tax Act. The last time the deduction limits were revised was in 2015 when they were fixed at ₹25,000 for individual health insurance premiums and ₹50,000 for senior citizens.
Given the increasing cost of healthcare, there is a movement to double these limits to ₹50,000 for individuals and hike preventive health cheque-up deductions to ₹20,000 from ₹5,000. It has also proposed a separate deduction of ₹10,000 per employee [per year] for employer-sponsored health checkups.
The insurance penetration rate in India has marginally dipped from 4% in 2022-23 to 3.7% in 2023-24. With a medical inflation rate of around 14%, this reduction makes insurance products less attractive and accessible, requiring urgent action.
According to the National Health Account, 44.1 per cent of household health expenditures are out of pocket. The high percentage also reflects the financial burden on households, which is further compounded by the World Economic Forum's estimate of $85.4 trillion retirement savings gap India will face by 2050.
The retirement savings sector is also calling for reforms to encourage people to save for retirement. At present, there is a deduction of an extra ₹50,000 on investments made in the New Pension Scheme (NPS). Industry leaders are predicting that this benefit should be extended to annuity products, which are critical to long-term retirement planning.
Experts say that taxes on annuities and other pension-related products should be simplified or removed to encourage more people to secure their financial future. Long-term retirement security bonds are also proposed, combining insurance coverage with guaranteed returns and tax-free maturity benefits.
Stakeholders have suggested zero-rating specific schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and smaller policies with a sum assured up to ₹2 lakh for increased accessibility. Reduced taxation on insurance products [along with these measures] is expected to make insurance more inclusive, especially for underserved populations.
Tapan Singhel, Managing Director and CEO of Bajaj Allianz General Insurance emphasised the importance of these reforms: ‘Reducing GST or increasing tax deductions under Section 80D can help make insurance more affordable for the ‘missing middle’ and help build financial resilience.’ Moreover, regulating hospital pricing and services can also help to control medical inflation and provide equal access to quality healthcare.
The proposed changes are intended to fill critical gaps in India's healthcare and retirement sectors. The government can create a more inclusive and robust insurance landscape by reducing GST rates, widening tax exemptions, and introducing products such as retirement bonds. Beyond financial security, these measures are consistent with broader goals of economic resilience and social well-being.
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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