Prime Minister Narendra Modi led government may give the masses a New Year Gift by the way of lower GST Rates on Health Insurance Premiums. It can also raise the deduction limit that is currently available on buying a Health Insurance Plan.
India’s Finance Minister Mr. Arun Jaitley will present the Union Budget in the parliament on February 1, 2018. This year, the insurance sector is hoping the government would take the right steps to provide a boost to the sector. With the introduction of Goods and Services Tax, the tax payable on financial services had been hiked from the initial 15% to 18%. This has increased the premium payable for health and life insurance products.
Considering the importance of protecting an individual’s capital in case of emergencies, accidents and rising medical costs, the government is willing to consider the demand, since health insurance costs have moved centre stage in the policy circles.
The Finance Minister may consider increasing the deduction limits under the I-T Act and give larger tax breaks. In this regards, the finance ministry has asked the umbrella body of general insurance firms to examine the proposal for the Budget 2018-19.
There are two ways by which the government could provide relief to the insurance sector through the Budget –
- It can lower the GST rate payable on health insurance products
- It can raise the deductions provided under Section 80D of the Income Tax Act. By providing a wider tax limits, the government can persuade people to buy a health insurance product.
The apex body of insurers, the General Insurance Council, is actively pushing for inclusion of both the above measures in the Budget 2018-19. They had also met the members of the revenue department in the finance ministry for the same.
On the other hand, according to the close sources of the General Insurance Council, the finance ministry is more keen on the idea of increasing the deduction limit.
Currently, Section 80 D of the Income Tax Act allows anyone, who buys a medical insurance policy to get a tax waiver of up to Rs 50,000 per year. The taxpayer is entitled to a deduction of Rs 25,000 on health insurance policies for self, spouse, dependent children. And he is also entitled to claim another Rs. 25,000 for health policies of parents (Rs 30,000 for senior citizens). This was last changed in Finance Act 2015, and considering the current inflation in healthcare cost there is a further need to increase the deduction limit.
A CRISIL estimate shows health insurance for the financial year 2016-17 had accounted for 24 percent of the gross premium of all the general insurance companies. For the private sector players, this percentage stands at an even smaller number of 12 percent of the gross premium. The reason being, the perceived high claims ratio in group health insurance makes private sector companies less enthusiastic in entering this field.
The government is also likely to offer taxpayers some relief by changing the Personal Income Tax (PIT) slabs. At present, the exemption limit is set at Rs 2.5 lakh per annum which may be increased to Rs. 3 lakh per annum. The finance ministry may also enhance the limit for tax-free investments and expenses under section 80C of the Income Tax Act to Rs 2 lakh from Rs 1.5 lakh.
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