GST on Health Insurance Premium

GST (Goods and Services Tax) on health insurance was implemented by the Government of India in 2017. It removed the previously existing cascading effects of multiple taxes. Now, GST is imposed on the health insurance sector, along with other goods and services, nationwide.

The GST on health insurance is 18%. Previously, the rate of service tax on insurance was 15%, which included:

• 14% Basic Service Tax
• 0.5% Swachh Bharat Cess
• 0.5% Krishi Kalyan Cess

With the evolution of tax systems in India, we have received multiple queries regarding GST on health insurance. This article covers everything you need to know about GST on health insurance, along with the latest GST rates.

What is GST?

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

GST Slab Rates

As per the list published by the Central Board of Indirect Taxes and Customs (CBIC), over 500+ services and 2000 goods, including health insurance, fall under four GST slab rates.

Here are the categories:

Understanding GST on Health Insurance

GST on health insurance is applied at the time of purchase or renewal. It refers to the additional amount levied on health insurance premiums.

You can easily calculate health premiums including GST using the PolicyX health insurance premium calculator.

All health insurance calculators provide premiums including GST, making it easier to acquire precise rates for your chosen health insurance plan. The 18% GST on health insurance is applied as per current GST regulations.

Compared to previous tax laws, a 3% increase in the tax percentage on health insurance has been observed nationwide.

Impact of GST on Health Insurance

GST is applied to all insurance plans, including health insurance. As a result, the health insurance premium you pay today will automatically be subjected to the 18% GST.

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

The premium you pay for your health plan provides comprehensive coverage for a variety of medical expenses, not limited to mere hospitalization.

GST is applied to health insurance premiums that cover pre- and post-hospitalization fees, daycare treatments, diagnostic testing, OPD costs, and maternity care, all of which are covered under such plans during the policy period.

GST Rate On Health Insurance

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

For instance, suppose you opted for a health insurance policy with a coverage amount of INR 5 Lakh and an annual premium of INR 10,000.

Here's the cost impact:

Before GST on health insurance premiums:

The applicable tax was 15%. The premium payable would have been:

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

After GST on health insurance premiums:

The current applicable tax is 18%. The premium payable is calculated as follows:

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

You would pay INR 11,800 for your medical insurance premium.

Impact Of GST On Tax Deductions

While the imposition of GST on health insurance increased from 15% to 18%, there is still a silver lining. Customers are eligible for tax benefits under Section 80D of the Income Tax Act.

This allows customers to claim tax deductions for premiums paid towards health insurance plans, which includes the GST on health insurance premiums.

Impact of GST on Renewal of Health Insurance

Upon purchasing a health insurance plan after the introduction of GST, you will pay an increased premium.

Individuals who purchased long-term policies before GST came into effect will not be affected by the GST. However, the premium they pay at renewal will be calculated based on the new tax regime.

Positive Impacts of GST on Health Insurance Policies

Due to the increase in GST on health insurance, premium rates have risen significantly, leading to tighter competition among insurers.

Insurers now offer health insurance policies at more competitive prices to attract customers. They also simplify policy-buying and claim-filing processes, enhancing services to draw more potential insurance customers. The introduction of GST on health insurance has, thus, increased the overall quality of services provided by health insurers.

The Future Outlook

There have been suggestions from various quarters, including the State Bank of India (SBI), to reduce or exempt GST on health insurance premiums. These proposals aim to make health insurance more affordable and accessible, especially for senior citizens and those with lower incomes. The government has acknowledged these concerns but has not yet implemented any changes. One reason for this could be that exempting GST would deny insurance companies the benefit of input tax credit (ITC), which could lead to higher premiums. The government is attempting to find a balance between providing relief to policyholders and ensuring the financial viability of insurance companies. However, the GST Council is likely to consider the report of the Group of Ministers (GoM) that reviewed the taxation of health and life insurance premiums. The council may decide on changes to the GST rates in future meetings.

Tax Savings Under Section 80D

Health insurance provides you and your family with a financial safety net in the event of any medical emergency. It also helps prevent draining your life savings for the treatment of minor or major ailments.

The purchase of health insurance not only provides a financial cushion but also offers tax exemptions, helping you save your hard-earned money. Under Tax Benefits Under Section 80D, insurance holders are eligible for tax deductions of up to INR 50,000 per fiscal year.

GST on health insurance does not change how you can avail of tax deduction benefits via Section 80D of the Income Tax Act.

Conclusion

With a significant shift in India's insurance sector tax structure, it is natural to have questions. However, the implementation of GST on health insurance has brought many benefits for both buyers and sellers.

For further information on GST on health insurance premiums, contact insurance experts at PolicyX.

Finally, when opting for any health insurance plan, one must consider their needs and carefully match them with the plan's provisions. Check the policy tenure, claim settlement ratio, and other details that will shape the entire insurance plan in the long run, not just the premiums.

To find out how you can benefit from the latest GST tax structure on health insurance, connect with our insurance experts.