Budget 2025 expectations: Insurers seek GST cut, Section 80D hike, more

Budget 2025: Key demands include reducing GST on premiums, revising tax exemptions under Section 80D, and introducing a health regulator to counter rising medical inflation

Budget 2025 expectations: With less than a month before Finance Minister Nirmala Sitharaman presents the Union Budget 2025, the insurance sector has outlined its key expectations, seeking reforms to improve health insurance accessibility and affordability. Key demands include reducing GST on premiums, revising tax exemptions under Section 80D, and introducing a health regulator to counter rising medical inflation.  

 

Call for separate tax exemption for term insurance  

 

Industry leaders emphasise the importance of tax incentives in driving insurance adoption.

 

"Tax incentives have played a vital role in increasing insurance coverage. Introducing a separate tax exemption for term insurance would encourage more Indians to secure their families with sufficient life coverage and narrow the protection gap," said Rajiv Gupta, President, PB Fintech.  

 

 

Gupta also suggested that the current Section 80C deduction limit of Rs 1,50,000, which includes multiple investment categories, is insufficient. "A separate category for term insurance can simplify financial planning and promote insurance adoption."  

 

GST reduction on premiums  

 

The affordability of insurance products remains a major challenge, particularly for low-income groups.  

 

"The 18% GST on premiums acts as a deterrent. Lowering the rate will make insurance products more affordable, directly benefiting policyholders," Gupta explained.  

 

Increased deductions under Section 80D  

 

The demand for higher deduction limits under Section 80D has also gained traction.  

 

"We recommend increasing the health insurance deduction to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens. Including tax exemptions for contributions to Health Savings Accounts can help people manage rising healthcare costs," Gupta added.  

 

G Srinivasan, MD & CEO of Galaxy Health Insurance, echoed this view. "The Section 80D limits need to be increased to Rs 50,000 for all and Rs 1,00,000 for senior citizens. Moreover, this should be extended to the new tax regime to enhance insurance penetration."  

 

Srinivasan also urged changes to Rule 6E, which currently allows only 50% unexpired premium reserve calculations. "Switching to the 1/365 method, as permitted by Irdai, would align with modern financial practices."

 

Rule 6E determines how insurance companies calculate the money they must set aside (reserve) for policies that are still active but haven’t reached their full term. Currently, this rule allows companies to set aside only 50% of the total premium for the period that hasn’t yet expired, regardless of the actual duration left.  

 

Current method (50% rule):  

Imagine a policyholder pays Rs 12,000 for a one-year health insurance policy (Rs 1,000 per month).  

If the policy has six months remaining, Rule 6E allows the insurer to reserve 50% of the premium as an unexpired premium reserve.  

 

50% of Rs 12,000 = Rs 6,000.  

 

This method doesn’t accurately reflect the actual time left on the policy.  

 

Proposed method (1/365 method):

 

The 1/365 method, already approved by Irdai, calculates reserves more precisely based on the actual days left in the policy.  

Using the same example, if six months (182 days) remain, the insurer would reserve money for exactly those days.  

182/365 × Rs 12,000 = Rs 5,985.  

 

This approach aligns better with global accounting practices and ensures that reserves are based on the actual duration left in the policy, making it fairer and more transparent. With this, insurers can also manage their finances more effectively and provide a clearer picture of their liabilities.

 

Reforming taxation of annuities  

 

Another key demand is revisiting the taxation structure for pension and annuity products.  

 

"Taxing annuity income along with the principal discourages retirement planning. Exempting this income could promote wider adoption of retirement-focused products," Gupta noted.  

 

Health Regulator

 

Another expectation is the creation of a health regulator.  Tapan Singhel, MD & CEO of Bajaj Allianz General Insurance that the rising medical inflation, fueled by escalating hospitalisation costs, presents a challenge for insurers, who can only adjust their product prices every three years.

 

“Medical inflation can increase substantially during this period—sometimes by nearly 15%. To combat this, it’s crucial to establish pricing consistency at the hospital level," said Singhel.

 

Optimism for sector growth  

 

Shilpa Arora, Co-Founder and COO of Insurance Samadhan, outlined her hopes for Budget 2025.  

 

"India's insurance sector grew steadily in 2024, driven by increased awareness and innovative products. However, challenges like medical inflation and GDP underperformance persist," Arora said.  

 

She pointed out that with 57 insurers operating in the country and $6.5 billion in investments attracted over the past nine years, the sector is poised for further expansion. "The government's 100% FDI allowance could spur competition and innovation, but rationalising GST rates and introducing tax incentives are essential to maintaining this momentum."  

 

Citing Irdai's "Insurance for All" vision for 2047, Arora said, "I expect measures to improve affordability, particularly for the middle class, and to make insurance more rural-focused."