Budget should address ‘embedded taxes’ that inflate healthcare costs

Granting "zero-rated" status to healthcare or introducing a minimal GST slab with full ITC eligibility would unlock an estimated 5–6% of costs currently trapped within the supply chain

Doctor examination young man with stethoscope in hospital. healthcare and medicine File photo

India’s Union Budget 2026-27 holds significant promise, given the slew of reforms in 2025 such as the New Labour Code and Goods and Services Tax (GST) rationalisation. The reduction in GST rates from 12 to 5% on ophthalmic equipment and lowering of tax barriers on essential medical technology has set the stage for a more inclusive healthcare ecosystem.

To further this momentum, the government could address the structural challenge of embedded taxes that continue to inflate operational costs. Granting "zero-rated" status to healthcare or introducing a minimal GST slab with full ITC eligibility would unlock an estimated 5–6% of costs currently trapped within the supply chain. This structural shift would allow hospitals to pass on substantial direct savings to patients, truly maximizing the impact of the recent rate rationalizations.

Focus on the Union Budget should be patient centric from a healthcare perspective. Public investment has reduced out-of-pocket expenditure from 48.8% of total health expenditure in 2017-18 to 39.4% in 2021-22, according to the Ministry of Health and Family Welfare. The National Health Policy set an ambition of raising public health expenditure to 2.5% of GDP by 2025, and Budget 2027 should show a credible glide path toward that goal. (Estimates were 1.9% for early 2025)

The government could also significantly lower the cost of technology adoption by doing away with the residual 7.5-10% Basic Customs Duty and the 5% Health Cess on high-precision, non-indigenous technologies. Equipment such as Femtosecond lasers and advanced retinal imaging systems are critical for sight-saving procedures but remain expensive to import. Eliminating these landed costs will facilitate deeper penetration into Tier 2 and Tier 3 cities, ensuring that patients in smaller towns have access to the same world-class surgical offerings as those in metropolitan hubs.

Furthermore, as we move toward a tech-led healthcare future, the high cost of Artificial Intelligence (AI) integration must be addressed. While AI-driven diagnostics for conditions like Diabetic Retinopathy can revolutionize early detection, the recurring costs of high-end software licenses, GPU-based computing power, and AI-integrated hardware remain prohibitive. We propose a weighted tax deduction on AI-related capital expenditure and a reduction in duties for diagnostic machines with embedded AI software. This would incentivize hospitals to deploy automated screening tools in remote areas, significantly reducing the burden of avoidable blindness through technology. Interest subsidies for medical centres branching out in under developed areas will incentivise them to adopt a pan India approach.

Besides reforms, focus should also be given to strengthening financial protection. As of October 1, 2025, AB-PMJAY (Ayushman Bharat Pradhan Mantri Jan Arogya Yojana) had over 42 crore people enrolled and more than 33,000 empanelled hospitals across public and private systems. Healthcare systems should prioritise timely claims settlement and package rates that track inflation in consumables and skilled manpower. This can be further augmented by the Ayushman Bharat Digital Mission, reducing duplication of records, delays, and avoidable tests.

The next phase of the National Health Mission could prioritise funding for NCD screening, diagnostics, referrals, and follow-up—especially preventive measures—as WHO data shows these diseases account for 63% of all deaths in India. The National Health Mission allocation for 2025-26 was about Rs 37,227 crore, and the next phase should protect funding for screening, diagnostics, referrals, and follow-up for non-communicable diseases.

These measures along with expanding the scope of the current PLI scheme to encourage made in India incentive for manufacturing of medical eye equipment will set the country on course to world class medical facilities.  The PLI scheme for medical devices has an outlay of Rs 3,420 crore with incentives on incremental sales through FY 2026-27; extending and widening it to include ophthalmic devices and diagnostics, and expanding skilling and fellowship funding, will build a stronger domestic ecosystem.

 Author Dr Arun Singhvi is MD & CEO, ASG Eye Hospital