Health insurance is essential for protecting ourselves and our loved ones from unforeseen medical expenses. To encourage people to invest in health insurance policies, the government has introduced certain incentives like tax exemptions and other benefits. However, with the introduction of GST, there has been some confusion surrounding the impact of the tax on medical insurance. In this article, we will discuss the impact of GST on health insurance policies, the rates, and how it impacts your premium.
What is GST?
GST (Goods and Services Tax) is a tax levied on the value added to goods and services at each stage of their production and sale. Think of it like this: every time a product or service changes hands, from creation to final purchase, a small tax is added. This tax is collected by the government and then divided between the central and state governments.
GST on health insurance
Goods and Services Tax, commonly known as GST, is a comprehensive indirect tax that subsumed various taxes prevalent in the pre-GST era. When it comes to health insurance, GST has become a pertinent factor influencing the cost and taxation dynamics associated with medical coverage. Let us delve into the specifics of how GST is applied to health insurance and explore its implications.
Health insurance GST rate
The GST rate on health insurance is a crucial factor that policyholders need to consider. As of the latest updates, health insurance falls under the category of services and is subject to a GST rate of 18%. This rate applies to the premium paid for health insurance policies, impacting the overall cost of coverage. This essentially means that the GST rate on medical insurance premiums increases the total cost of your health insurance. Understanding this rate helps you accurately calculate your expenses and make informed decisions about your healthcare coverage.
Health insurance GST rate and HSN code details
Service Description |
GST Rate |
All Accident and Health Insurance Services |
18% |
Universal Health Insurance Scheme |
Nil (Exempt) |
Niramaya Health Insurance Scheme (for persons with disabilities) <br> (Run by the Trust under the National Trust Act, 1999) |
Nil (Exempt) |
Types of GST on health insurance
To understand the GST dynamics in health insurance comprehensively, it is essential to differentiate between the types of GST applicable to various aspects of insurance. The GST on health insurance primarily encompasses:
GST on medical insurance premiums
This refers to the GST levied on the total premium paid for medical insurance policies. Currently, the GST rate on health insurance premiums in India is 18%. This means that for every ₹100 you pay as a premium, ₹18 goes towards GST.
GST input on health insurance
Insurers can claim the input tax credit on the GST paid for various services and goods procured in the process of providing health insurance. This includes expenses like office rent, IT infrastructure, and advertising. By claiming this credit, insurers can reduce their overall tax burden, which can help keep premiums more affordable.
Medical indemnity insurance GST
Medical indemnity insurance, which provides coverage for medical professionals against legal liabilities arising from their practice, is also subject to GST. The applicable GST rate on medical indemnity insurance is the same as that for general insurance services, which is currently 18%.
How does GST impact your health insurance premium?
Before the implementation of GST (Goods and Services Tax), health insurance premiums in India were subject to a 15% service tax. However, with the introduction of GST, the rate on health insurance increased to 18%.
This hike has been a point of contention, with the insurance industry advocating for a lower rate, ideally around 5%. They argue that the higher GST rate contributes to the low penetration of health insurance in India, as it makes policies more expensive for consumers.
The COVID-19 pandemic highlighted the importance of health insurance, leading to a surge in demand. However, the high GST rate remained a barrier for many individuals seeking financial protection against medical emergencies.
Despite discussions and proposals to reduce the GST rate on health insurance premiums, the GST Council has maintained the 18% rate. In 2022, the Council clarified that the "No-Claim Bonus" offered by insurers is not subject to GST, offering a slight relief to policyholders.
While the debate continues, the current GST rate on health insurance premiums remains at 18%, impacting the affordability of health coverage for many Indians.
Impact of GST on health insurance
The introduction of GST has had both positive and negative impacts on health insurance policies. While the cost of insurance policies has increased due to the 18% GST, it has resulted in better compliance and transparency in the industry. The introduction of GST has also led to better documentation, which has reduced the number of fraudulent claims made by policyholders.
