Union Budget 2025: Healthcare sector seeks tax cuts, funding innovations and rural outreach

As the Union Budget approaches, the healthcare sector raises concerns and outlines critical expectations to address systemic challenges. Leaders from major healthcare institutions call for comprehensive reforms and substantial investments to ensure equitable and affordable healthcare for all.

Although India’s out-of-pocket healthcare expenditure has decreased from 64.2% in 2013-14 to 39.4% in 2021-22, according to the National Health Accounts Estimates, achieving Universal Health Coverage (UHC) remains a difficult task. While public healthcare spending has risen from 1.13% to 1.84% of GDP during the same period, experts argue that this is still far from the goal of 3% by 2030.

“We expect a clear roadmap to increase public healthcare spending. Strategic investments coupled with supportive policies can bridge the rural-urban divide and ensure access to critical care, especially in underserved regions,” said Dr. Praveen Gupta, Principal Director & Chief of Neurology at Fortis Hospital. He said that a holistic approach involving all stakeholders is essential to ensure healthcare reaches every corner of the country.

Funding remains a critical barrier to scaling healthcare infrastructure. Experts recommend innovative funding mechanisms such as a “Fund of Funds,” public-private partnership (PPP) models, and the creation of healthcare-specific business trusts like Real Estate Investment Trusts (REITs).

“Tailored funding mechanisms can drive innovation and expand infrastructure to meet the growing demands of our population,” said Dr. Gupta**.**

One of the primary expectations from the upcoming budget is tax reforms. Industry leaders and experts are advocating for zero-rating GST on healthcare services or rationalizing it to a 5% slab, which can significantly reduce costs for hospitals and nursing homes.

“Reinstating the 150% deduction under Section 35AD of the Income Tax Act for new healthcare projects and providing tax holidays for a minimum of 15 years for new projects, alongside a 10-year tax relief for existing facilities, are also key demands. Such measures will ease the financial burden on healthcare providers and ensure that cost savings are passed on to patients, making healthcare more affordable,” said Dr. Aashish Chaudhry, Managing Director at Aakash Healthcare.

India’s healthcare sector stands at a crossroads, with immense potential to transform its delivery systems. A sizeable investment in infrastructure, rational policies, and increased collaboration between stakeholders are vital to achieving the ambitious goal of Healthcare for All by 2030.

Health sector experts believe the Union Budget offers a unique opportunity to address these challenges and lay the groundwork for a sustainable and inclusive healthcare system.

“This is the time for decisive action. By prioritising funding, accessibility, and innovation, the government can make healthcare accessible, affordable, and equitable for all citizens,” Dr. Chaudhry added.

Anup Mehra, DGM Finance at PSRI Hospital said “Reclassifying hospitals as infrastructure can open up avenues for long-term investments, enabling the sector to expand capacity and improve service delivery.”

The sector also seeks government support to address the acute shortage of healthcare professionals and critical care facilities in rural and semi-urban areas. While 70% of the population resides in rural India, 80% of specialists are concentrated in urban centers. This disparity, coupled with a shortage of advanced medical equipment in smaller towns is a major hurdle in providing quality care. Bridging this gap requires collaborative efforts between the public and private sectors.

“The government must create incentives to attract skilled professionals to underserved areas and invest in building comprehensive healthcare ecosystems,” Mr Mehra added.

India’s Tier II and Tier III cities continue to be underserved in terms of healthcare infrastructure, emphasizing an urgent need to expand private healthcare facilities in these areas. The Ayushman Bharat-PMJAY scheme, designed to improve healthcare access, has led to increased demand in smaller cities. However, the scheme’s existing pricing models do not accurately capture the true cost of service delivery, putting healthcare providers in a financially challenging position.

“Rationalising package pricing and providing operational subsidies for power and utilities, akin to those offered to government hospitals, can ease this burden. Without equitable pricing models and relief on operational costs, healthcare providers cannot sustain operations in these regions,” said Dr. Rajendra Patankar, Chief Executive Officer, of Jupiter Hospital, Baner Pune**.**

The rise in non-communicable diseases (NCDs) poses another significant challenge. By 2030, NCDs are projected to cost India $6 trillion, making comprehensive screening and diagnostics programs an urgent priority.

Dr. Aakaar Kapoor, CEO of City X-Ray, stressed the importance of these programs, stating, “Early detection can reduce long-term healthcare costs and improve patient outcomes. Incentives like tax exemptions for diagnostic centers and lower import duties on equipment are necessary to make this vision a reality.”

India also has tremendous potential in medical value travel (MVT), but current policies do not fully support this burgeoning sector. “Introducing tax exemptions for earnings from medical tourism and streamlining visa processes for international patients can make India a global hub for healthcare services. India’s medical expertise and cost advantage are unmatched, but policy reforms in medical visas and rationalizing fees are essential to attract more patients,” said Dr. N. K. Pandey, Chairman and Managing Director of Asian Hospital.

Manun Thakur, Founder & CEO of Veda Rehabilitation and Wellness said that investing in mental health is crucial for not only enhancing productivity but enhancing overall happiness across sectors as it is causing Indian companies a loss of over $14 Billion (INR 1,19,000 crores) annually.

“The Union Budget for 2024-25 allocated approximately ₹90,659 crore to the healthcare sector, a modest increase of 2% from the previous fiscal year. However, only about 1% of this allocation is dedicated to mental health initiatives, with ₹850 crore for the National Institute of Mental Health and Neurosciences (NIMHANS), ₹60 crore for the Lokopriya Gopinath Bordoloi Regional Institute of Mental Health, and ₹90 crore for the National Tele-Mental Health Programme (TELE Manas). Despite these allocations, there is a pressing need for increased funding and awareness, especially regarding postpartum depression. Reports indicate that around 22% of new mothers in India suffer from postpartum depression, yet many remain unaware of their condition,” he said.

He also suggested that by dedicating more resources to mental health services and launching focused awareness campaigns about conditions like postpartum depression, the government can drastically enhance national well-being.

Another critical demand is the reclassification of hospitals as infrastructure investments. This move can attract substantial private sector participation, essential for building state-of-the-art healthcare facilities. Coupled with interest rate subvention for medical equipment, these reforms can provide the financial impetus needed to modernise India’s healthcare sector, said Mr Thakur.

Healthcare leaders and experts also stressed the importance of insurance reforms. Despite schemes like Ayushman Bharat, insurance penetration remains low, leaving many households vulnerable to catastrophic health expenses. Implementing mandatory health insurance for all citizens and gradually extending coverage to self-employed professionals can make healthcare more equitable.