GST was introduced in the year 2017 by the Government of India, and it has removed the cascading effect of various taxes applicable in the insurance industry. GST is levied on every good and service in the country, and health insurance is also one of them.
Currently, GST on health insurance is 18%. Previously it was 15%, including 0.5% of Swatch Bharat Cess, 0.5% of Krishi Kalyan Cess, and 14% of base service tax.
In the below article, we will try to tell you about the impact of GST on health insurance in detail.
What is GST?
GST is a single indirect tax levied on various goods and services at the point of consumption, including real estate, health insurance, transportation, etc. Below mentioned are the different types of GST:
- Central GST (CGST): CGST is a type of tax that goes to the central government per transaction.
- State GST (SGST): State GST is a type of tax that goes to the state government whenever a transaction occurs within the state.
- Integrated GST (IGST): This type of GST charges when interstate supplies are made between two union territories, two states, and foreign territories.
- Union Territory (UTGST): This type of GST is levied by the government of union territories if any transaction takes place within the union territory.
There are five slabs of taxes in GST, i.e. 0%, 5%, 12%, 18%, and 28%, and GST on health insurance is 18%.
Impact of GST on Health Insurance
Goods and Services Tax or GST has been implemented on all health insurance plans. This means that the premium you pay for your health insurance will attract 18% GST. Now buyers will have to pay a higher premium amount as the price of health insurance has increased after the implementation of GST. The health insurance premium you pay for your health insurance plan will provide you with comprehensive health coverage against medical costs arising from an illness or accident. Some of the significant coverage benefits offered under health insurance are:
- In-patient hospitalization
- Pre and post-hospitalization
- Domiciliary Hospitalization
- Ambulance Charges
- Maternity Care
- Daycare Treatments
- AYUSH Treatments
Health Insurance GST Rate
GST applies to the entire health insurance premium you pay for your health insurance plan. But in life insurance, GST is applicable only on the risk coverage portion of the premium but not on the investment portion.
Suppose Ram buys a health plan of INR 10 Lakh sum insured, and the premium amount will be INR 5K. The exact amount to be paid by you will be different after the implementation of GST.
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Before GST
Tax on Health Insurance was 15%. The premium amount will be:
(15% of 5,000) + 5,000= INR 5,750
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After GST
GST on Health Insurance is 18%. The premium amount will be:
(18% of 5,000) + 5,000= INR 5,900
This means, now you have to pay more to buy a health insurance.
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GST Impact on Tax Deduction
Health insurance is treated as a service under the GST system, and group policyholders are no longer eligible to receive tax benefits. The tax rate before GST on health insurance premiums was 15%, and now it is 18%.
The GST rate on health premiums is charged as an indirect tax on the actual value of the service. As per the existing laws, you can avail of tax benefits up to INR 75K as a salaried professional.
GST on Health Insurance Renewal
After the implementation of GST or Goods and Services Tax, new policyholders and those renewing their health policies will have to pay a higher health insurance premium to buy or renew health insurance plans. GST will not apply to those who had purchased health insurance before it was implemented. The premium they pay at the time of renewal will be charged based on the current tax regime.
Positive Impact of GST on Health Insurance
Health insurance premiums have increased dramatically due to a significant increase in tax rates. As a result, there is more competition among health insurance companies. To get more people to buy their health insurance, health insurance companies offer health insurance plans at lower and more affordable premium amounts. Moreover, they simplify the process of buying and claiming a health policy, resulting in increased interest of people in health insurance due to better and advanced services. The quality of services provided by health insurance companies has improved after implementing GST.
Negative Impact of GST on Health Insurance
The new tax regime affects both existing policyholders and potential health insurance buyers. Because of this, policyholders have no option but to accept the newly increased health insurance premiums to buy health insurance plans.
Group policyholders will not be able to take tax benefits from their health insurance policy as health insurance is treated as a service to individuals. To understand the new tax regime in detail, it is advised to consult our "RenewBuy" POSP advisors.
Conclusion
Based on the above explanation of the advantages and disadvantages of changing the tax regime, the increased cost of health insurance will significantly impact the buyer's budget when buying a health insurance plan.
At last, before buying any type of health insurance policy, a person should thoroughly assess their needs and match them with the facilities offered under health insurance plans. Check the premium amount, policy tenure, claim settlement ratio, claim process and coverage benefits offered under the health plan before buying the health insurance plan.
Another thing you need to check is the GST on health insurance. The GST on health insurance is also an important aspect that you need to consider before buying a health plan to buy a health plan that fits your budget and meets your expectations.