Union Budget 2024: Will the FM offer some tax relief to healthcare, health insurance sectors?

Budget 2024-25: Before each Budget, the allocation of funds and tax incentives for various sectors become prominent topics of discussion. Leading up to this year's comprehensive Budget, experts and industry insiders have emphasized the need to increase the healthcare spending as a percentage of GDP. This would enhance accessibility, affordability, and most importantly, the overall quality of healthcare services in India, especially in rural areas, with a focus on preventive care, primary clinics, and secondary care facilities.

Experts have already been anticipating a higher allocation in the health sector, with anticipated increase in fundings for the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), vaccination, and disease control programs. 

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The Ministry of Health and Family Welfare saw a 13% proposed increase in outlay to Rs 87,657 crore for FY25 during the interim Budget in February 2024. Additionally, there was a 10% rise in outlay for the Ayushman Bharat scheme to Rs 7,500 crore, with a proposal to include Accredited Social Health Activists (ASHA) and Anganwadi workers under its purview by the Finance Ministry.

However, experts have been also asking for tax benefits for the health sector. In light of the COVID-19 pandemic, healthcare has emerged as a top priority. Consequently, tax policies may focus on incentivizing increased investments in healthcare facilities, medical research, and pharmaceutical manufacturing.

Besides, Section 80D of the Income-tax Act, 1961 allows individuals to claim tax deductions for health insurance premiums and certain health-related expenses. The deduction limit under section 80D was increased from Rs 15,000 to Rs 25,000 in the 2015 Budget and has remained unchanged for the past nine years. Given that the current limit of Rs 25,000 may not adequately cover the average health insurance premium for many taxpayers of different age groups, the insurance industry is calling for an increase in the limit in Budget 2024.

a. Tax deduction on Life insurance: Currently, section 80C(2)(i) of the IT Act allows taxpayers to claim a tax deduction against premium paid towards Life Insurance policy taken by the taxpayer for himself/herself or his/her family. "However, such a deduction cannot exceed 10% of the sum assured w.e.f. 1/4/2013 in case of a normal person and 15% of sum assured in case of a person suffering from specified diseases u/s 80U or 80DDB of the IT Act. Further, such deduction shall also be subject to an overall threshold of Rs. 1,50,000. As the inflation increases, the insurance companies adjusts their premiums to account for the higher expenses and potential future claims. Thus, the government may consider increasing the aggregate quantum for all such eligible deductions u/s 80C of the IT Act," Surana added.

b. Mediclaim premium: Section 80D of the IT Act allows individual taxpayers to claim deduction for Mediclaim premium. The quantum of such deduction is limited to Rs. 25,000. 

"However, in case medical insurance premium has been paid for any senior citizen member of the HUF, the aforementioned quantum shall be enhanced to Rs. 50,000. Further, it is pertinent to note that deduction can also be claimed w.r.t. medical expenditure can of upto Rs. 50,000, provided that the same has been paid in respect of a senior citizen with no health insurance. Additionally, the government may also increase the quantum of Rs. 50,000 applicable to senior citizens to Rs. 75,000 given the increasing health and medical expenses," Surana said.

"Changing tax sections 80C and 80D to provide separate tax breaks for the life-threatening risk part of term life plans could help close the gap in death risk coverage and enhance social security," said Satishwar B., MD and CEO, Bandhan Life.

"India is a price-sensitive market where consumers seek maximum value, making tax benefits a significant nudge towards purchasing health insurance. Besides financial protection, health insurance offers tax benefits under Section 80D, making it attractive from a savings perspective. The 80D tax exemption should be linked to inflation and revised periodically. Increasing the current limit of Rs 1 lakh for tax deductions would encourage more people to opt for health insurance. Currently, policyholders can claim deductions of up to Rs 25,000 for parents under 60 and Rs 50,000 for those over 60. Raising these limits to Rs 50,000 and Rs 1 lakh, respectively, would further incentivize health insurance for elderly parents. Tax exemptions should also extend to dependent family members like siblings," said Krishnan Ramchandran, MD & CEO, Niva Bupa Health Insurance.