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Impact of 2021 Union Budget on health insurance in India

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Published on March 15, 2021 | Est Read Time: 2 min

The health insurance sector in India has been a great contributor in assuring high-quality healthcare at affordable prices to beneficiaries. The Government of India through its financial support and policy interventions have supported the insurance sector to widen their net and be accessible to as many citizens as possible. In this article, we look at the impact of this year’s Union Budget on the health insurance sector. 

Impact of the Union Budget on the Insurance Sector

The Union Budget plays a great role in setting the direction and enabling growth of the insurance sector. Health insurance sector is particularly reliant on the budget in three ways for contributing to its ongoing growth. Let us look at the three ways in which the union budget plays a role in insurance growth:
1. By declaring income tax benefits on the premium paid:  Union government declares different tax sops for people who purchase insurance. Primarily, the government allows taxpayers to deduct premium amounts from their taxable income. Even the smallest hike in these tax benefits acts as a great boost to insurance sales.
2. By regulating the taxes charged upon purchase of insurance policies by public:  Like any other commercial activity, the insurance services are also liable for service tax component under the new Goods and Services Tax rules. If the government lowers the tax rate for purchase of insurance policies, the insurance companies directly pass on these tax benefits in the form of cheaper insurance to public at large.
3. By regulating and liberalising Foreign Direct Investment (FDI) in the Insurance Sector:  The more liberalised a sector is, the more capital investment it attracts and the better it can serve its markets. A higher limit on FDI means that the insurance sector will be able to ensure structural stability for insurance providers. It will also benefit policyholders by allowing better investments in customer support services, adoption of new and next-gen technologies, etc.

Income Tax Deduction Regulations Under Section 80 D in Budget 2021

The experts were hoping for improved tax sops under the 2021 union budget for health insurance sector given the global pandemic. However, the government has taken a conservative approach and retained tax benefits from the previous year in 2021 as well.

Under Section 80D, the following deductions are permissible: 

• An individual can claim a deduction of INR 25,000 per annum on his, his wife or kids premium. In case, he is a senior citizen, he is eligible to claim a deduction of INR 50,000.

• If he is paying the medical insurance premiums of parents below 60 years of age, then the claim can be INR 25,000 and if the parents are above 60 years of age, then INR 1,00,00 can be claimed.

Apart from the above deductions under Section 80D, a claim of INR 5,000 can be raised (Within the INR 1 lakh limit) for any health check-up related expenses for the entire family.

GST Applicable on Insurance Policies in 2021

The government has also not made any change to the GST rate levied on the insurance policy purchase of any kind. Insurance policy GST remains at 18% until any notification from the GST board in this regard. 

Increase in FDI for insurance to 74% in Budget 2021

The government has proposed that the Foreign Direct Investment in insurance sector be raised to 74%, which was last raised in 2015 to 49%.

In her Budget Speech , the Finance Minister said, “I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in Insurance Companies and allow foreign ownership and control with safeguards.”

This is a path breaking reform in the insurance sector where foreign firms will be allowed to own and operate insurance businesses in India. The likes of this have never been seen before in the country. Its impact will bring unprecedented growth in the Indian insurance sector. More players mean more competition and that can have a significant impact on health insurance premium.

Ayushman Bharat and the Pradhan Mantri Jan ArogyaYojana (PM-JAY)

This is the largest such health assurance scheme on a global level launched by the government. Under the PM-JAY, more than 50 crore Indians have become eligible for health insurance of up to INR 5 lakhs per family, per year of secondary and tertiary care hospitalisation. This is going to become a great feeder for health insurance market in general. As more and more people outgrow the economic eligibility criteria, they will form a ready channel for general insurance companies to tap into for sale of health insurance products.

Conclusion

All in all, while budget 2021 may not have changed the Income Tax benefits for health insurance, the boost to 74% FDI in the insurance sector will contribute to massive growth in health insurance sector.

Disclaimer- The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.