The Government introduced the Goods & Services Tax, popularly known as GST, in 2017. GST consolidates multiple indirect taxes such as excise duty, VAT, and service tax under a single umbrella. It also helps business owners to understand the tax implications better and allows them to conduct business transactions more smoothly.
GST applies to almost all goods and services, including health insurance products, sold across the country. When you buy health insurance plan, you must pay an 18% GST. Let’s get into the nitty-gritty of how GST affects your medical insurance. However, before that let us first understand what GST is and how it works.
What is GST?
GST is a single indirect tax that you—the consumer, must pay when purchasing household goods such as clothing and food. Furthermore, this tax is applicable if you avail of any services such as dining, transportation, or insurance.
Types of GST on Health Insurance
This portion of GST goes to the Central government's account.
The component of GST is collected by the state government on intra-state transactions.
IGST is split evenly between the Central and the state government. Here, the concerned state is where the goods or services are consumed.
- Union Territory GST (UGST)
You must pay UGST if you have consumed goods or services in a union territory such as Chandigarh and Andaman & Nicobar.
In India, there are five GST slabs—0%, 5%, 12%, 18%, and 28%. The Government has clearly defined which services or goods will be subject to which tax bracket.
Impact of GST on health insurance
Health insurance has become expensive since the implementation of GST. Earlier, when purchasing health insurance, the policyholder was charged a 15% service tax. The components of the service tax are:
- Basic service tax – 14%
- Swach Bharat cess – 0.5%
- Krishi Kalyan Cess – 0.5%
Since the tax rates were revised, you must now pay an additional 3% in taxes when purchasing or renewing medical insurance
Tax savings under section 80D
Investing in health insurance not only protects you financially in the event of a medical emergency but also allows you to save a significant amount of money on taxes. Section 80D of the income tax allows you to bring down the tax payable amount by up to Rs 1,00,000. Here is the table detailing the tax benefits
under section 80D
| Covered Individual |
Maximum Deduction |
| Insurance premiums paid for self, spouse, or dependent children, all under the age of 60 years. |
Rs 25,000 |
| Insurance premiums paid for self, spouse, dependent children, and parents, all under the age of 60 years. |
Rs 25,000 + Rs 25,000 |
| Insurance premiums paid for self, spouse, dependent children, and senior citizen parents. |
Rs 25,000 + Rs 50,000 |
| Insurance premiums paid for self, spouse, dependent children, and parents, all over the age of 60 years. |
Rs 50,000 + Rs 50,000 |
In addition to the insurance premium, you can also claim a deduction for the amount spent on the preventive health check-up. The maximum exemption limit, in this case, is Rs 5,000.