GST Impact on Health Insurance Premium

After the rollout of Goods & Services Tax or GST, it has been applied on various products. The insurance sector is no exception. The 3% hike on insurance sector undoubtedly has its impact on one’s personal finances, albeit marginally. Let’s know how GST has impacted the insurance sector so far.

Read More

Policybazaar exclusive benefits
  • 30 minutes claim support*(In 120+ cities)
  • Relationship manager For every customer
  • 24*7 claims assistance In 30 mins. guaranteed*
  • Instant policy issuance No medical tests*

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

*Tax benefit is subject to changes in tax laws. Standard T&C Apply

Find affordable plans with up to 25% Discount**
  • 1
  • 2
  • 3
  • 4

Who would you like to insure?

  • Previous step
    By clicking on “Continue”, you agree to our Privacy Policy and Terms of use
    Previous step

      Popular Cities

      Previous step
      Previous step

      Do you have an existing illness or medical history?

      This helps us find plans that cover your condition and avoid claim rejection

      Get updates on WhatsApp

      What is your existing illness?

      Select all that apply

      Previous step

      When did you recover from Covid-19?

      Some plans are available only after a certain time

      Previous step
      Advantages of
      entering a valid number
      You save time, money and effort,
      Our experts will help you choose the right plan in less than 20 minutes & save you upto 80% on your premium

      What is GST?

      The Goods & Services Tax was implemented in 2017. All the indirect taxes such as the service tax, excise duty, VAT, etc. are henceforth subsumed under this single tax, that helps the tax-payers understand the process of tax-payment, It also helps in making the business transactions in a smoother way.

      The GST is divided into two parts, State GST and Central GST for the ease of division of revenue between the centre and the states. That is a wholly technical segment of GST mechanism. One of the major functions of GST is that it eliminates the chances of double taxation down the value chain that existed earlier, which resulted in a huge tax burden as a whole.  

      GST and Insurance

      Before the GST regime was implemented, there was a 15% service tax on health insurance. That 15% consisted of basic service tax of 14%, Swach Bharat Cess of 0.5% and lastly the Krishi Kalyan Cess of 0.5%.

      After the introduction of the GST regime, the service tax has been revised upwards, and it stands at 18% now. So there has been an increase of 3% than earlier tax rate or a 300 basis point rise in the cost of insurance. New GST rule is to be followed by those who are looking for new insurance policies or renew their existing policies.

      The tax hike has influenced health and other insurance products in a wholesome way because the premium structure sees a broad change due to it. We can understand this change in the laymen’s terms so that everyone, irrespective of having insurance knowledge or not, can understand it.

      Let’s say you have purchased one health insurance plan worth Rs. 8 lakh, which is the sum insured by the insurance company and you have to pay Rs. 20,000 annually as the premium.  

      The GST added premium would be Rs. 23,600 where there will be an amount of Rs. 3,600 added to the premium as the tax. And that tax is calculated at 18%. Earlier you would have been paying just Rs. 3000 rather than the current extra amount of Rs. 3,600.

      Advantages of GST

      Of course, not all is negative about GST on Insurance in India. Certain new aspects came up into the insurance sector due to this tax hike after implementation of GST.  

      Yes, the tax on health premiums has increased. But how has it helped the person buying insurance? It has helped by means of competition in the market. Let’s explain.

      As the premiums increase due to hike in the tax rate, the insurance companies are getting worried about their eroding customer base because an average Indian in general and a policy-buyer in particular, is always anxious about an upward premium rate. Simply put, GST or new tax rates affect the insurance premium, due to which customers hesitate to buy insurance and this will eventually affect the insurers’ business.

      So, what these companies do is, they have started introducing health insurances at very affordable costs, and these prices are lower than earlier.  Apart from the price advantage, the customer gets to experience a less-cumbersome policy purchase process as well as claim registration process. The insurers make sure that no non-tax barrier is there for the buyer. From their perspective, the companies are cutting down costs involved in issuing policies. This is a saving for them.  

      In totality, the GST has made the whole process a lot less cumbersome to rollout.

      Disadvantages of GST

      You never get all the benefits without tasting a little sour side.

      Certainly, after all these procedural advantages, a few points need to be remembered about the new taxation regime. As per the new rule,it is applicable not only on new policy-buyers but also the existing policyholders, those who purchased health policy earlier would have to pay the increased amount of premium.

      Another major impact would be around the notion of the insurance itself. As insurance is considered as service under the GST regime, there will be no input tax credit facilities available for individual policyholders. The tax advantages, availed by group policyholders will be gone too.

      Before the GST, the pure risk term insurance premiums were taxed at 15%. Due to the presence of an investment component in the Unit-Linked Insurance Plans and Endowment Plans, their premiums were subjected to a concessional rate of service tax. For the initial premium, the concessional rate was 3.75%, and for renewal premiums, the rate was 1.875%. After the arrival of the tax hike, with the GST being 18%, for new insurance buyers, the first-year premiums will be 4.50% whereas the renewal premiums will be 2.25%.

      The ULIP charges that were hitherto taxed at 15% will now be taxed at 18%. 1.5% service tax was imposed on single premium annuity policies, which will now be 1.8%.

      In model GST, there is no concession for Endowment and ULIP policy. But requests are made to the Government to extend this earlier provide concession to the ULIP and Endowment policyholders. All non-life insurance policies include health policies, home insurance, motor insurance, etc. And all these will be impacted by the revised rate.

      To Conclude!

      From the above explanation, one can contemplate the risks and the benefits regarding the change in the tax structure. Indeed the cost of insurance is going to increase, and that will certainly affect the buyer’s budget while purchasing a health insurance plan. On the other hand, the induced competition has begun down-sliding the price of policies, which is seen as an olive branch by the prospective buyers.

      Lastly, while purchasing any of those health insurance policies, one must ponder over his/her requirements and carefully match those with the provisions in the plan. Do not just focus on the premiums; check the policy tenure, claim settlement ratio and process, offered benefits, and other details that will shape the whole insurance plan in the long run. The GST on health insurance will be an aspect of such concern that you must address with due carefulness and research,  in order to ensure a policy that is within your budget and at par with your expectations.

      Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.

      Health insurance articles

      Recent Articles
      Popular Articles
      Reasons to Purchase High-Value Health Insurance Cover

      21 Feb 2024

      When you decide to purchase a health insurance plan for you and
      Read more
      Surgeries Covered by New India Assurance Health Insurance Plans

      22 Feb 2024

      In an era where healthcare expenses are skyrocketing in India, the
      Read more
      Is a 10 Lakh Health Insurance Adequate in Your City?

      10 Jan 2024

      An ongoing medical inflation of 14 percent in India (the highest
      Read more
      Dental Treatment Coverage from Star Health Insurance

      21 Dec 2023

      The rising costs of healthcare services have made it necessary for
      Read more
      11 Reasons Why Senior Citizens Should Buy Aditya Birla Activ One Plan

      05 Dec 2023

      Health insurance is one of the biggest assets that senior citizens
      Read more
      How to Apply for Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY)?
      Ayushman Bharat Yojana is a flagship health insurance scheme launched by the Government of India to offer universal
      Read more
      Best Health Insurance Plans for Senior Citizens
      Senior citizens are the most prone to diseases. Considering the medical inflation in India, buying health insurance
      Read more
      Does Health Insurance Provide Coverage for LASIK Eye Surgery?
      A vast majority of the Indian population is suffering from vision problems. For some of them, LASIK eye surgery is
      Read more
      10 Major Benefits of Ayushman Bharat Yojana
      Pradhan Mantri Jan Arogya Yojana (PM-JAY) is the second component under Ayushman Bharat Scheme. PM Narendra Modi
      Read more
      How Senior Citizens can save Tax with Medical Bills u/s 80 D?
      Senior citizens can save on income tax by availing tax benefits on medical expenses under Section 80D of the Income
      Read more

      Download the Policybazaar app
      to manage all your insurance needs.