Budget 2022 Expectations: What Does Health Insurance Sector Want
Ahead of every union budget are innumerable lists of suggestions and demands championed by every industry, sector and vertical. While entering the third year since the pandemic broke, the health insurance sector has its own wishlist, chief among them being the matter about a well-deserved cutback on the top-rate GST on insurance premiums.
In defence of accessibility and affordability of life insurance
An 18 per cent GST slab is indisputably at the very high end of tax brackets, something that is understandable to be imposed on luxury goods. But when it is levied on an essential financial product such as insurance premiums, it’s absolutely heartbreaking. As it is, in a country as populous as India, investing in insurance instruments is still a rare phenomenon, one reserved for the educated that also have well-lined pockets. Add to that an 18 per cent GST and it feels like someone wants to prohibit people from buying insurance.
Inversely, lowering the GST rate to a manageable 5 per cent on insurance premium is a liberal, forward-looking move that is bound to appeal to a huge cross-section of the society once the impact is clearly understood. That providing such a tax relief will directly correlate to a spurt in insurance penetration is also something that India could benefit from.
In this post-pandemic environment, the need for health insurance is hardly lost on anyone. However, a policy's premium is key to the ultimate decision making of the buyer - whether to purchase the cover now or defer till the next year. Lifting the 18 per cent GST burden from health insurance brings down the premium costs and eases the decision making process by making the product more affordable for the masses.
Raising the bar
Health cover premiums have increased noticeably since the inclusion of the serious diseases clause. This despite the fact that the deduction cap under Section 80D remains steady at Rs 50,000. Raising this ceiling to Rs 1 lakh would ease the insurance customers’ burden by a bit. For senior citizens, the current limit is Rs 50,000, which could be raised to a proportionate Rs 75,000.
A case for dedicated 80C benefit
As of today, most financial purchases related to insurance coverage are united under the singular 80C umbrella, with an amalgamated cap of Rs 1,50,000. For a really long time, the life insurance sector has been demanding a dedicated carve-out for 80C in the tax deduction and for good reason. Having all the instruments grouped together makes for a crowded bouquet with no enough tax benefits to go around. Penetration of life insurance products is stunted significantly due to this move and reversing this condition could account for a spike in the same. In fact, a separate space for this instrument may drive people to coherently segregate their resources into long- and short-term buckets and get better organised as a result.
Provide a boost to 'Make in India'
The 'Make-in-India' initiative is another timely call-to-action for the InsurTech sector in specific and startups in general. This planned push for tech adoption is important to make the economy self-reliant again. Hence, fintech, health tech and InsurTech startups could really benefit from policy and tax sops such as moderated GST rates. Such changes will encourage them to continue building scalable, digital infrastructures while streamlining offline offerings to save costs and time.
A liberal IPO policy guideline, along with a revised compliance policy and relaxation of tax obligations will lift another burden off their shoulders. Extending necessary exemptions to all startups such as relaxing angel tax and gift tax regulations will further incentivise Indian and overseas investors to engage with the sector - a boon for the industry.
Address the anomalies
Our taxation system is layered, cumbersome and not without anomalies. Inaccuracies such as the obvious double taxation that happens at the time of annuity payouts are unfair factors that have rigged this system for eons. Such flaws should not be left to stand any longer; in fact, addressing it in this budget makes the in-hand payout that much fairer in such dark times. Not to mention that many beneficiaries of these payments are citizens who come under the senior or super-senior categories; any relief to them in their golden years in terms of reduction in annuity taxation is a well-deserved relief.
Also, at present, employers providing group health insurance programmes are unable to claim input credit for the GST paid. If allowances are made for GST-registered businesses to be able to make input tax credit claims for GST paid will keep them on the right track, of continuing with these necessary policies for their employees.
Miscellaneous demands
As an industry, life insurance is very exclusive. For example, there’re huge risks involved in the balance sheet and capital investments are almost never short of Rs 2,000 crore. Hence, comparing this sector to even any other financial instrument segment is not an even playing field, leave alone most other industries.
This also means life insurance companies are better equipped with their long-term assets to aid the country's infrastructure segment back on to its feet and subsequently, drive growth in GDP. Keeping this factor under consideration, the government could also extend some incentives towards investments into life insurance, national or overseas, which would in turn assist national development at a fairly large scale.
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