The Goods and Services Tax or GST on health insurance has been a major point of discussion, particularly in GST Council meetings. Earlier, GST on health insurance premiums were subject to a 15% service tax. Discussions are ongoing to reduce GST on health insurance to 5%, which could make health coverage more affordable. This article explores the GST structure on health insurance and what is the GST on health insurance premiums.
What is the GST on health insurance?
GST is levied on the health insurance premiums at the time of purchase or renewal. The standard GST for health insurance premium rate applicable is 18% under HSN code 997133. However, government-run schemes for economically weaker sections are exempt from GST, like the Niramaya Health Insurance Scheme and Universal Health Insurance Scheme.
GST rate on health insurance with HSN codes
Health insurance falls under the GST framework, with different tax rates based on the policy nature.
- Accident and health insurance services – 18% (HSN Code: 997133)
- Universal Health Insurance Scheme – Nil GST (HSN Code: 9971 or 9991)
- Niramaya Health Insurance Scheme – Nil GST (HSN Code: 9971 or 9991)
Types of GST on health insurance plans
Different types of GST apply based on the nature of the transaction.
- CGST (Central GST) – the central government collects 9% for intrastate health insurance sales.
- SGST/UTGST (State/Union Territory GST) – 9% is collected by state or UT governments for intrastate sales.
- IGST (Integrated GST) – 18% is charged for interstate health insurance sales, where the insurer is in one state and the policyholder is in another.
Impact of GST on health insurance policy
The GST rate on health insurance has affected health insurance in several ways:
- Higher premiums: The GST increase from 15% to 18% has made health insurance policies more expensive.
- Lower affordability: Individuals, particularly in lower-income groups, struggle to afford policies due to higher costs.
Impact of GST on health insurance policy renewal
The renewal of older policies is also affected by GST:
- Older policies (pre-GST era): Only renewals attract the 18% GST.
- Higher renewal costs: Policyholders renewing older policies must bear the increased tax burden.
- No service tax adjustments: Insurance holders cannot adjust previously paid service tax against the new GST rate.
Positive impact of GST on health insurance policies
The GST has brought some benefits.
- GST has eliminated the previous “tax on tax” issue.
- Insurance companies can claim tax credits on their expenses, improving operational efficiency.
How to calculate GST in health insurance?
The GST on health insurance is calculated based on the premium.
- GST is applied to the base premium amount: A policy with a Rs 25,000 premium attracts an 18% GST, adding ₹4,500 to the total cost.
- No GST on No-Claim Bonus (NCB): If a policyholder has an NCB, GST is only applied to the reduced premium.
Tax savings under Section 80C and 80D
Health insurance also provides tax benefits.
- Section 80D deduction: Policyholders can claim tax deductions up to Rs 25,000 (₹50,000 for senior citizens) on premiums.
- Family coverage benefits: Taxpayers can also claim deductions for premiums paid for spouses, children, and dependent parents.
- Section 80C benefits: Some policies with life cover components may qualify for additional deductions.
Can I claim GST on health insurance?
Under certain conditions, businesses may claim GST paid on health insurance as an Input Tax Credit (ITC).
- Businesses can claim GST paid on employee health insurance if it is a mandatory benefit.
- Individual policyholders cannot claim GST refunds on personal health insurance.
- Employers providing group health insurance can get ITC.
Why do you need a health insurance plan?
Health insurance is essential because:
- Unexpected hospitalisations can lead to financial strain.
- Healthcare costs are rising, making insurance necessary.
- Policies provide tax deductions, reducing the financial burden.
FAQs
- Is GST applicable on all health insurance policies?
Yes, except for government-backed schemes for economically weaker sections.
- Will the GST on health insurance be reduced in the future?
There is speculation about reducing the GST rate, but no official confirmation yet.
- Can I claim the GST paid on my health insurance as a tax refund?
No, individual policyholders cannot claim GST as a refund.
Conclusion
GST health insurance has significantly impacted policy costs, increasing premiums from the earlier service tax regime. The current 18% GST rate makes policies expensive, affecting affordability. While GST adds to the price, health insurance policy remains an essential financial tool. Whether you choose an individual health insurance policy or a family plan, investing in the right insurance ensures long-term security and financial stability.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is not intended as a substitute for professional advice, diagnosis, or treatment. Please consult your general physician or another certified medical professional for any questions regarding a medical condition. Relying on any information provided in this blog is solely at your own risk, and ICICI Lombard is not responsible for any effects or consequences resulting from the use of the information shared.