GST on Health Insurance Premium

The Goods and Service Tax (GST) introduced in the year 2017 was a great decision by the Govt. of India. It has removed the previously existing cascading effects of several taxes. GST is levied on a variety of goods and services across the country, including health insurance.

The GST on health insurance is 18%. Previously, the rate of service tax on insurance was 15%, which includes a 14% base service tax, a 0.5 % Swachh Bharat Cess, and a 0.5% Krishi Kalyan Cess.

What is GST?

GST is a single indirect tax applied at the point of consumption on a variety of goods and services such as transportation, real estate, and insurance. GST is divided into four categories:

• Central GST (CGST):The Central Government receives a part of the GST collected per transaction.
• State GST (SGST):When a transaction takes place within a state, a part of the transaction goes to the state government.
• Integrated GST (IGST):The GST is charged on interstate supplies made between two or more states or union territories (UTs), or between one state or UT and foreign territory.
• Union Territory GST (UGST):The GST is levied by a Union Territory in India for transactions that take place within the Union Territory.

GST is levied on a variety of goods and services in five different slabs: 0%, 5%, 12%, 18%, and 28%. Medical insurance products are charged at a rate of 18%.

Impact of GST on Health Insurance

The Goods and Services Tax covers all insurance plans, including health insurance (GST). This means that the premium you pay for your medical insurance policy will be subject to the 18% GST.

Insurance premium prices have increased for buyers after the implementation of GST. They will now have to pay an additional amount depending on the current rate, rather than the previous 15% service tax.

The premium you pay for your health plan provides you comprehensive coverage for a variety of medical expenses not limited to mere hospitalization. Pre and post hospitalization fees, daycare treatments, diagnostic testing, OPD costs, and maternity care are also covered under such plans during the policy period.

Health Insurance Companies

Health Insurance GST Rate

The GST on health insurance premiums is applied to the total amount of the premium. This is not the situation with life insurance, where GST only applies to the risk coverage component of the premium and not to the investment component which offers maturity benefits.

For Instance, suppose you opted for a health insurance policy of coverage amount of INR 5 Lakh and the premium cost is INR 10,000 per year.

Now, let us see the cost impact:

Before GST

The tax applicable was 15%. That is, the premium to be paid would have been:

(15% GST on 10,000) + 10,000=11,500 INR

After GST

The current tax applicable is 18%. That is, the premium to be paid is calculated as below:

(18% GST on 10,000) + 10,000=11,800 INR

You have to spend 11,800 INR on your medical insurance premium.

Impact Of GST On Tax Deductions

Under the GST system, insurance is considered a service. The tax benefits for group policyholders are no longer available. Term insurance premiums, which were previously taxed at 15%, are now increased to 18%. Previously, the investment component of unit-linked insurance and endowment plans was subject to a lower rate of service tax.

Impact of GST on Renewal of Health Insurance

New policyholders and those renewing their policies after the introduction of the Goods and Service Tax or GST, would have to pay a higher premium amount. Individuals who purchased longer-term policies before the GST came into effect will not be affected by the GST. However, the premium they pay at renewal will be based on current tax rates.

Positive Impacts of GST on Health Insurance Policies

Due to the increase in the tax rate, health insurance rates have risen significantly. The competition between insurers has tightened as a result of this. Insurers offer Health Insurance policies at lower and more affordable prices to get more customers to buy their products. They also make the policy-buying and claim-filing processes easier so that better services attract more potential insurance customers. The introduction of GST has increased the overall quality of services provided by health insurers.

Negative Impact of GST on Health Insurance Policies

The new tax scheme affects not just prospective policy buyers, but also existing policyholders. As a result, policyholders have no choice but to accept the new premiums. In addition, because insurance is considered a service that benefits an individual, individual policyholders will no longer be able to input tax credits, and group policyholders will not be able to profit from the tax advantage. As a result, it is advisable to seek the advice of a financial specialist to better comprehend the tax structure and its specifics.

What is GST?

The goods and services tax is a tax regime that has replaced multiple indirect taxes applicable before such as VAT, excise duty, service tax, and more. In simpler words, GST is applied to the supply of all goods and services. The tax is a multi-stage tax regime which is a comprehensive tax.

Tax Savings Under 80D?

Health Insurance is an essential investment to safeguard yourself and your family. It provides your family with a financial safety net in the event of any medical emergency and saves you from draining your life savings for the treatment of any minor or major ailments. The purchase of health insurance not only provides a financial cushion but also is a source for tax exemptions and saving your hard-earned money.

Under Section, 80D insurance holders are eligible for tax deductions of up to INR 25,000 per fiscal year. Individuals who invest in health insurance plans can benefit from tax breaks by paying premiums for health insurance purchased for themselves, their spouses, dependent children, or parents. Senior citizens, on the other hand, are eligible for a tax deduction of up to INR 50,000 under section 80D.

Conclusion

One might consider the risks and benefits of changing the tax structure based on the above explanation. The inflated cost of insurance will have a significant impact on the buyer's budget when purchasing a health insurance plan. Induced competition has begun to lower the price of policies, which is perceived as an olive branch by potential customers.

Finally, while obtaining any of the health insurance policies, one must consider his or her needs and carefully match them with the provision of the plans. Check the policy tenure, claim settlement ratio and process, offered benefits, and other details that will shape the entire insurance plan in the long run, not just the premiums. The GST on health insurance is one such problem that you should address with caution and research to ensure that you receive a policy that fits your budget and meets your expectations.