GST on Health Insurance and Its Impact on Premiums

What is GST on Health Insurance?

The GST on health insurance premiums in India is 18%. It is levied on buying and renewing a health insurance policy for individuals, families, and senior citizens, as well as on critical illness plans. The GST amount is included in the total premium amount by the insurer and does not have to be paid separately.

However, the Group of Ministers (GoM) under the GST Council is likely to submit their report on the proposal to reduce GST on health insurance premiums from 18% to 5%.

GST on Health Insurance with HSN Codes

Take a look at the GST on health insurance with their HSN codes:

*HSN code stands for Harmonized System of Nomenclature, which is used to systematically classify goods from across the world. HSN codes are used in GST to make it more systematic and widely accepted.

Who is Exempted from GST on Health Insurance?

People buying the Universal Health Insurance Scheme (UHIS) and Niramaya Health Insurance Scheme are exempted from paying GST on medical insurance. These government health insurance schemes are designed for the economically weaker sections of society. While the UHIS offers medical coverage and personal accident cover, the Nirmaya Health Insurance scheme is run under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999.

How to Calculate GST on Health Insurance?

GST on health insurance can be calculated by determining the 18% of the premium amount. The total medical insurance premium can be calculated by adding the GST amount to the original premium amount. Let's understand how GST on health insurance is calculated with the following example:

Suppose you have purchased a health insurance plan of ₹10 lakh for an annual premium of ₹15,000. Since the GST on medical insurance is 18%, it would come to ₹2,700, i.e. 18% of ₹15,000. Thus, the total premium payable after adding GST would be ₹17,700 (₹15,000 + ₹2,700).

Health Insurance Premiums Before GST vs After GST

Take a look at the table below to compare health insurance premiums before and after GST:

Thus, health insurance plans have become more expensive with the introduction of GST.

Types of GST on Health Insurance

The following three types of GST are levied on health insurance premiums:

1. CGST

   CGST refers to the Central GST levied by the Central Government on buying or renewing a mediclaim policy within a state/ Union Territory (UT). The CGST on health insurance is 9% and is collected by the Centre. The CGST is charged on medical insurance along with the SGST component.

2. SGST

   SGST refers to State GST levied by the State Government on purchasing or renewing a medical insurance policy within a state or UT. The SGST on health insurance is 9% and is collected by the State Government where the policy was purchased or renewed. Moreover, the SGST is charged on mediclaim policy premiums along with the CGST component.

3. IGST

   IGST refers to Integrated GST levied on the interstate sale or renewal of a medical insurance policy, i.e. the sale of policy from an insurer of one state/UT to the policyholder of another state/UT. The IGST on health insurance is 18%, which is the total of CGST and SGST and is collected by the Central Government. The Centre gives a part of the collected IGST to the consuming state/UT and keeps the remaining amount.

Impact of GST on Health Insurance

Before GST was implemented, there was a 15% service tax on health insurance. It consisted of a basic service tax of 14%, Swacch Bharat Cess (SBC) of 0.5% and the Krishi Kalyan Cess (KKC) of 0.5%. This service tax of 15% was levied on all medical insurance plans at the time of purchase.

After the introduction of GST, the service tax on health insurance was replaced by a GST of 18%, which was a 3% absolute increase. This led to GST increasing medical insurance premiums, making many customers hesitant to buy a policy. Thus, the GST has contributed to low health insurance penetration in India.

However, suggestions on lowering GST on health insurance premiums have been made to make insurance more accessible for the masses. In fact, the GST council is expecting a report from the Group of Ministers (GoM) on the proposal of reducing GST on medical insurance from 18% to 5%.

Impact of GST on Health Insurance Renewal

After GST is implemented, all health insurance renewals attract a GST of 18%. This means policyholders will have to pay a GST of 18% on the renewal premium of a mediclaim policy. If the policy to be renewed has a No Claim Bonus (NCB), the GST will be calculated on the premium amount after deducting the NCB discount. Thus, GST is not applicable on NCB or no claim bonus.

Can Policyholders Claim GST on Health Insurance?

GST on health insurance premiums can be claimed for tax benefits under Section 80D of the Income Tax Act. The entire medical insurance premium amount is eligible for tax deductions, along with the GST amount. While people below 60 years can claim tax benefits for up to ₹25,000 per year, senior citizens are eligible for tax exemption for up to ₹50,000.

However, businesses are not allowed to claim GST on medical insurance premiums unless they have purchased group health insurance policy for its employees as input tax credit (ITC).

Advantages of GST on Health Insurance

Check out some of the advantages of GST on health insurance:

• As GST has led to an increase in mediclaim policy premiums, health insurance companies have started to offer health plans at affordable prices.
• Customers get to experience a hassle-free policy purchase as well as a claim registration process.
• It also removes any tax on-tax effect and helps insurers pay GST on their sales while claiming GST paid on purchases made for its employees as ITC (Input Tax Credit).

Disadvantages of GST on Health Insurance

Take a look at some of the disadvantages of GST on health insurance:

• GST hikes medical insurance premiums as policyholders now have to pay a GST of 18% compared to the previous service tax of 15%.
• GST applies not only to newly purchased health policies but also to existing policies. Thus, people who purchased health policies before the implementation of GST will also have to pay the increased premium during renewals.
• As insurance is considered a financial service under GST, there will be no ITC benefits available for individual policyholders.