Why Modi 3.0 Budget 2024-25 Seriously Needs to Increase the Tax Benefit on Health Insurance

India's spending on healthcare (public and private) is low, estimated to be 3.8% of the GDP -- less than even the Low-Middle Income Countries (LMIC) average of 5.5%.

While there is private participation in India's healthcare system, it is expensive.

As a result, households are feeling the strain when faced with a medical emergency having to manage it with out-of-pocket expenses.

Currently, roughly only 37% of the population is covered by some or the other health insurance policies (government-sponsored, employer-sponsored or private).

A sizeable section still does not have health insurance, which could protect their financial interests amidst rising healthcare costs.

Those who have health insurance coverage, are feeling the pinch of rising health insurance premiums on their policies, particularly after the COVID-19 pandemic. Thus, even if they want to increase their health insurance coverage, are refraining from doing so.

One of the factors that is pushing up health insurance premiums is also the high Goods & Services Tax (GST) rate of 18%, which the Modi 3.0 government needs to reexamine in the upcoming full budget 2024-25.

Against the aforesaid backdrop, an increase in the tax benefit under Section 80D of the Income Tax Act, 1961, for the health insurance premium paid is also warranted.

Deduction under Section 80D of the Income Tax Act

At present, resident non-senior citizen individuals can claim a deduction under Section 80D of up to Rs 25,000 in a financial year in which the health insurance premium is paid.

Senior citizens, on the other hand, when paying for themselves can claim a deduction of up to Rs 50,000.

This deduction under Section 80D can be claimed by an individual for payment made for self, spouse, dependent children and dependent parents.

In other words, a non-senior citizen individual (under the age of 60) for self and family members who are not senior citizens, can avail of a deduction of up to 50,000 (Rs 25,000 + Rs 25,000) under Section 80D in a financial year.

In case, the non-senior citizen individual assessee is paying for the health insurance premium of self and family members, including senior citizen parents (above 60 years of age), the maximum deduction that can be claimed is Rs 75,000 (Rs 25,000 + 50,000).

And in the case where the individual assessee is a senior citizen and is paying the health insurance premium of self and for parents who are also senior citizens, then the maximum deduction allowed to claim under Section 80D is Rs 1 lakh (Rs 50,000 + Rs 50,000).

An individual assessee can also claim up to Rs 5,000 for preventive health checkups, paid for self, spouse, children, and parents. But note, that this expense is a part of the overall limits of Section 80D. Simply put, the deduction for preventive health checkups is not separate.

The contribution made to the Central Government Health Scheme (CGHS) or any other notified scheme is also allowed to individuals asessees and their family members up to Rs 25,000. However, here the contribution for parents is not allowed for deduction. Moreover, such a deduction claimed is a part of Section 80D.

Hindu Undivided Families (HUFs) are also eligible to claim the deduction under Section 80D. When all the members of the family are below 60 years, Rs 25,000 can be claimed as a deduction.

But if the member of the HUF is a senior citizen, the maximum deduction that can be claimed is Rs 50,000. HUFs are not allowed to claim a deduction for preventive health checkups.

The Expectations...

Considering the increase in health insurance premiums and healthcare costs, the aforementioned limits for deduction under Section 80D are insufficient. These deduction limits under Section 80D were last increased in the Union Budget 2015 (from Rs 15,000 earlier).

Therefore, a review by the Modi 3.0 (a coalition) is necessary and it is expected that the government increase the limits...

• - For individual assessees -- as well as HUFs -- below 60 years of age to Rs 50,000 (from present Rs 25,000)

• - For individual assessees below the age of 60 years claiming a deduction for non-senior citizen parents as well to Rs 75,000 (from Rs 50,000)

• - And for senior citizens to Rs 1 lakh (from Rs 50,000)

For senior citizens, particularly, those who are currently paying exceptionally high premiums, this could be a big relief.

Similarly, a reduction in GST (from the current rate of 18%) on health insurance premiums could make it affordable and accessible to a large section of the population.

[Read: What to Expect from Modi 3.0 Full Budget on July 23, 2024]

Hope to see, Modi 3.0 coalition government and finance minister, Ms Nirmala Sitharaman prioritise the healthcare sector and the health insurance segment in the full union budget 2024-25 (to be presented tomorrow, July 23, 2024) and provide the much-needed boost to the sector. Increasing the deduction limit under Section 80D shall also encourage people to buy a health insurance policy considering its tax benefit.

To conclude...

A comprehensive health insurance policy with an adequate sum insured (considering your family's medical history, the pre-existing diseases or comorbidities (if any), the number of dependent family members, the state and city you reside for access to healthcare facilities, the network of hospitals, and the healthcare costs) along with the all-embracing features of the policy (including the no-claim bonus) ensures peace of mind and adds to one's financial security.

Make sure you and your family have sufficient health insurance coverage in the interest of your financial well-being.

A cashless health insurance policy would prove to safeguard and reduce financial stress in case of a medical emergency.

Be thoughtful in your approach.

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