Like every year, the finance minister Nirmala Sitharaman is likely to present the Union Budget 2021 on February 1. As the budget day approaches, the biggest expectation everyone will have from the government is how it announces steps to bring the economy back on track. At the same time, the finance minister is expected get a barrage of wish-lists from various industries and sections. However, with quite a few things on the table – ranging from the ongoing pandemic, slowing demand, low industrial output and a record low GDP – it will be an uphill task for the government to meet the expectations of the people.
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Need to boost the spread of insurance
Like all other sectors, the upcoming budget has also generated significant interest amongst insurance companies. They expect some positive tax benefits and regulatory frameworks. This year’s union budget is all the more important for the insurance sector as in the year 2020, the segment witnessed several key announcements and regulatory changes in view of the ongoing pandemic. In the weeks to come, it will be exciting to see how the government plays its part in increasing the awareness around the importance of insurance. It is important to note that insurance coverage is just 3.69 per cent in India.
Boosting insurance coverage must be the key priority for a country such as India where there is almost zero social security. The only available instrument of social security for people in India is insurance.
Also read: Why you need additional health insurance despite having your company cover
In the last several years, many new laws and policies aimed at supporting the governance of the health system in India have been introduced but have not been implemented systematically. In the coming budget, the health insurance industry is one of the most prominent sectors that needs immediate consideration, especially during the given pandemic situation where a majority are deprived of quality healthcare.
As we target a $5 trillion GDP, it is important to develop a structure that provides steadiness and inspires people to proactively cover their health risks. In the upcoming budget, the health insurance industry expects the government to focus on bringing a large number of people under the ambit of health insurance.
Increase 80D Limit
In the upcoming budget, insurers demand enhancing the tax rebate under Section 80D from the current value of Rs 25,000 for an individual with dependent wife and kids to Rs 50,000. Currently, if a 35-year-old individual buys a family floater health insurance policy to cover self, spouse and 2 kids with a sum insured of Rs 15 Lakh (the minimum required for a family of four), the annual premium comes to Rs 26,000-28,000. When buying this plan, while the policyholder may save tax on Rs 25,000, the insured will have to pay tax on Rs 3,000.
Given that health insurance is not mandatory in India and there is no government owned universal healthcare system like one in the European countries where very citizen is enrolled in the national healthcare system, it will be a great move if there are certain initiatives in place which encourage people to invest in health insurance. In developing economies like India, it has been often observed that measures taken by government play a major role in driving the buying behaviour of people. As per the current income tax guidelines, senior citizens get an additional tax rebate of Rs. 25,000 if they buy health insurance. Similar rebates may also be offered to people buying health insurance for spouse and dependent kids. In order to have a healthy financial portfolio, insurance is a key ingredient.
Currently, the government taxes health insurance policies at 18 percent GST, which is significantly high when considering an essential and important financial product such as a medical cover. Considering the ongoing pandemic situation, it is important that the government nudges people to buy health insurance for reasonably large amounts. The health insurance industry demands that the tax on health insurance products be reduced to 5-6 percent as this will help in boosting the insurance coverage rate and will pay a major role in increasing the demand for health insurance policies.