GST on Health Insurance

Various products and services in India, including health insurance, are subject to taxation. You need to pay Goods and Services Tax (GST) when you utilise various services related to health insurance. This makes it essential to know the rules regarding GST on health insurance.

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The Parliament passed the Goods and Services Tax Act on March 29, 2017, effective July 1, 2017. GST is an indirect tax imposed on goods and services. It was introduced in place of several other indirect taxes in India.

 

Having a single tax means that every state applies the same rate for a specific product or service. It also improves tax compliance, as you are not burdened with multiple return forms and deadlines as a taxpayer.

When you buy or renew a medical or health insurance policy, you need to pay GST on premiums. They attract an 18% GST rate. It is under the HSN code 997133, similar to other insurance schemes.

 

Certain government-run health insurance schemes for economically weaker sections of society are GST-exempt.

You are liable to an 18% GST on the premium you pay for your health plan. The introduction of GST has increased premium costs.

 

Here is an example that can help you understand the impact of GST on health insurance:

• Say you have a health insurance plan for ₹20 Lakhs, and the premium amount is ₹50,000

• Now, the GST of 18% of the premium amount, which totals ₹9,000, will be added to your premium payment

• The final premium amount you need to pay along with GST is ₹59,000

Under the Income Tax Act, you can get tax benefits on health insurance policies. By purchasing insurance for yourself and your family, you can claim tax deductions under Section 80D of the Income Tax Act. 

 

The exact deduction amount depends on the total premium amount you pay. While senior citizens can enjoy a maximum deduction of up to ₹1 Lakh, regular individuals have a limit of up to ₹50,000.

 

You can also claim a deduction for preventive health check-ups of up to ₹5,000 annually. Note that tax-related information is subject to changes based on the annual budget and other relevant policies.

There are various types of GST applicable to health insurance plans. Here are the types:

• CGST or Central GST

It applies to the intrastate sale of a health insurance policy within a state. It is a component of GST along with State GST (SGST) or Union Territory GST (UTGST) collected by the Centre. The CGST rate on health insurance is currently 9%.

• SGST or State GST and Union Territory GST or UTGST

This type of tax is imposed on the intrastate sale of a health insurance policy within a state or UT. As a component of GST along with Central GST (CGST), it is collected by the respective state or UT. The SGST or UTGST rate on health insurance is 9%.

• IGST or Integrated GST

It is levied on the interstate sale of a health insurance policy from one state or UT to another. It combines the rates of CGST and SGST or UTGST and is collected by the Centre. 

 

The integrated GST rate on health insurance is 18%. The Centre distributes a portion to the consuming state and retains the remaining portion.

HSN (Harmonized System of Nomenclature) codes are a six-digit code that categorises products. It simplifies the process of categorising goods for taxation. Refer to this table to know the HSN codes for various health-related plans and schemes:

GST offers various benefits to you and insurance companies as well. Here are some of the positive impacts: 

• Clarity in Taxation

Under GST, health insurance premiums are consistently taxed at 18%. This ensures transparency in your insurance costs and helps you plan your expenses effectively.

• Uniform Taxation

GST simplifies the tax structure by replacing multiple taxes with a single tax on health insurance premiums. This makes the process for insurers easier and helps you understand tax implications clearly.

• Promotion of Compliance

GST promotes compliance and transparency in the insurance sector. Insurers need to accurately report and pay GST. This reduces the risk of tax evasion and ensures tax compliance.

• Input Tax Credit (ITC)

Insurance companies can claim an Input Tax Credit on GST paid for services and expenses, which helps them reduce their tax burden. This can lead to lower premium rates.

While there are various positive impacts of GST on health insurance, here are some negative impacts:

• Higher Premium Costs

GST has led to an increase in the tax rate on health insurance premiums. This means you now have to pay a higher premium amount for new and renewed policies.

• Reduction in Insurance Policies’ Demand

The higher premium costs due to GST may make it difficult to buy health insurance. This may lead to a reduction in the demand for insurance policies in the country.

Here are the steps to compute GST on premium amounts:

1. Determine the GST Rate: The GST rate applicable to health insurance premiums in India is currently 18%.

2. Identify the Premium Amount: The premium is the total amount you pay to the insurance company for your policy coverage.

3. Calculate the GST Amount: Simply use the formula: GST Amount = (Premium Amount * GST Rate) / 100.

4. Calculate the Total Premium: This total amount represents what you will pay to the insurer for your health insurance policy. Use this formula to calculate the premium: Total Premium = Premium Amount + GST Amount

5. Pay the Total Premium: Pay the total premium amount, including the base premium and the GST amount

Health insurance is an invaluable investment for your health. Here are some reasons why you should get it:

• It enables you to be financially prepared for unforeseen medical emergencies

• It grants you access to quality healthcare services through various network hospitals

• It offers comprehensive coverage for various medical expenses, including hospitalisation, surgeries, and treatments

• Many insurance providers include annual free health check-ups to promote regular health monitoring

When you renew your health insurance policy, here is how GST impacts it:

• You will need to pay the same tax rate of 18% applicable to new coverage

• If you purchased long-term health insurance before GST was introduced, you need not pay GST on premiums.