Budget 2025: Exempt GST, taxes on term, health insurance premiums - SBI's key suggestions

Union Budget 2025: It is just 7 days to the Budget 2025 presentation in the Lok Sabha on February 1, 2025 by FM Nirmala Sitharaman. The State Bank of India in its research report, stated that the Narendra Modi-led government should give significant focus to revitalizing the insurance and healthcare sectors in the country.

In its report, Prelude to Union Budget 2025-26, the SBI recommended that the government should assess the possibility of exempting GST and taxes on term and health insurance premiums, allocate 5 per cent of GDP to the healthcare budget, and standardise GST rates on medical devices to a range between 5 per cent and 12 per cent.

The SBI report noted: "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."

The 18% GST rate on insurance premiums poses a significant obstacle, especially for low-income individuals. The combination of high premiums and high GST renders insurance products out of reach for a large portion of the population.

Key recommendations

The SBI report recommended that the Government should focus on the following measures to revitalize the insurance sector:

• Exempting Term/Pure Life Insurance and health insurance premiums from GST and taxes
• Introducing a separate deduction for life/health insurance in the new or old tax regime, set at Rs 25,000/50,000, similar to the National Pension System (NPS)
• Consolidating all Government-sponsored pension schemes, including Atal Pension Yojana (APY), PM-SYM, PM-KMY, and NPS-Traders, under one umbrella
• Implementing an insurance program to provide coverage and social security benefits to MSME employees, as well as income protection for their families, through an insurance scheme for MSME Promoters to mitigate losses due to unforeseen circumstances beyond their control.
• The report underscored a decrease in insurance penetration in India to 3.7% in FY24, down from 4% in FY23 and 4.2% in FY22. Immediate actions are essential to fulfill IRDAI's vision of "Insurance for All by 2047." Specifically, life insurance penetration has dropped more significantly to 2.8%, while non-life insurance has remained steady at 1%.

Health sector

Regarding the health sector, the SBI report advised: 

The Government's support has led to a significant enhancement of diagnostic services in the country. It is crucial to ensure the availability of essential diagnostics at all levels of care to enhance healthcare quality and patient satisfaction, ultimately reducing Out of Pocket Expenditure on diagnostics.

In FY24, the domestic medical devices market in India was valued at approximately ₹75,000 crore, with a projected growth rate of 12-15% over the next five years. Extending the PLI scheme would enable manufacturers to increase production, decrease dependence on imports, and support the "Make in India" initiative.

Implementing tax incentives for research and development (R&D) as well as value-added activities in Global Capability Centres (GCCs) has the potential to drive innovation and boost employment opportunities.

Simplifying the Goods and Services Tax (GST) structure for medical devices by establishing a uniform rate of 5% or 12% can streamline compliance, enhance operational efficiency, and reduce costs for manufacturers and distributors, currently facing complexities due to varying GST rates ranging from 5% to 18%.

While the National Health Policy 2017 aims to increase healthcare spending to 2.5% of GDP by 2025 (up from 1.27% in FY16 and 1.95% in FY24), a more ambitious target of 5% may be necessary to adequately meet the healthcare needs of India's growing and aging population.

Utilising funds generated from a healthcare cess and potential 35% GST slab on tobacco and sugar products to strengthen public health programs could significantly contribute to improving overall health outcomes in the country.