What is the Impact of GST on Health Insurance Premiums?

Health insurance is essentially a service that’s offered by an insurance service provider. So, it comes under the ambit of the Goods and Services Tax (GST). GST is levied on the premium that you pay towards a health insurance plan at a flat rate of 18%. 

The levy of GST on health insurance premiums has had a profound impact on the cost of coverage. It has directly led to an increase in the price of premiums of existing health insurance plans. However, the rising premiums have also led to insurance service providers offering new and cheaper insurance plans to target consumers. So, if you plan to buy a health insurance plan in the near future, make sure to account for the impact of GST. 

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What is GST?

GST or Goods and Services Tax is a type of tariff levied by the government on various types of goods and services. GST was passed in the parliament on March 29, 2017 and came into effect on July 1, 2017. The GST is a single domestic tax applicable to the whole country. It is also applicable to services like health insurance and other types of insurance policies. In this article, we’ll take a look at how the introduction of GST has impacted the cost of health insurance.

GST on Health Insurance

Before the implementation of the GST rate on premiums, a service tax of 15% was charged on health insurance premiums. However, after GST was introduced, the tax on health insurance premiums was raised from 15% to 18%. Let’s understand how the introduction of medical insurance GST rate impacted premiums with the help of a numerical example:

Tax Before GST

For instance, if the yearly premiums you have to pay for your health insurance amount to ₹10,000 and the tax applicable is 15% (applicable service tax before GST), then the total amount you need to pay will be:

Total Insurance Cost = Premiums (₹10,000) + 15% of ₹10,000

= ₹11,500

Tax After GST

Using the same example as above, and with the new GST on medical insurance of 18% applied on the same premiums (₹10,000), the total amount you need to pay will be:

Total Insurance Cost = Premiums (₹10,000) + 18% of ₹10,000

= ₹11,800

The above example should help you get a better understanding of how the new GST system affects the cost of health insurance premiums. 

Impact of GST on Health Insurance Plans

Overall, the GST system introduced in 2017 has forced health insurance companies to increase the cost of their health policies due to the additional 3% tax applicable. Many insurers have also introduced new cheaper plans for people who cannot afford high-end plans due to increased taxes. 

Tax Savings Under Section 80D 

Fortunately, people who purchase health insurance can benefit from the health insurance tax deductions as mentioned in Section 80D of the Income Tax Act, 1961. As per Section 80D, you will be eligible to receive up to ₹25,000 as a tax deduction on the premiums paid. For senior citizens, the tax deduction goes up to ₹50,000 on the premiums paid. If someone is paying the health insurance for themselves and their elderly parents, they can receive a maximum tax deduction of ₹75,000. 

GST Rates Associated With Health Insurance Plans

Take a look at the health insurance plans available at Bajaj Markets below:

Plans Available

Hospitalisation Cover

Premiums with GST

Premiums without GST 

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Bajaj Allianz Health Insurance

₹5,00,000

₹3,776

₹3,200

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Aditya Birla Health Insurance

₹5,00,000

₹3,887

₹3,294

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Care Health Insurance

₹5,00,000

₹5,277

₹4,472

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Impact of GST on Renewal of Health Insurance Policies

The GST charged on health insurance renewals is the same as it is charged for buying a new policy, i.e. 18%. While you could get lower tax rates on health insurance renewals before the implementation of GST, the tax for buying a new plan or renewing an existing plan is the same with no concessions.

Positive and Negative Impacts of GST on Health Insurance

  • The rising prices of premiums because of GST have created immense competition in the market, and hence, insurers have started introducing cheaper insurance plans with lower coverage to target budget-conscious customers.

  • Due to the increased health insurance options for customers, potential buyers can take the time to select the plan that fits their budget and meets their requirements.

  • Health insurance companies have also streamlined the process of buying insurance through online means and attractive discounts in order to garner more customers.

  • On the other hand, the increased tax means that people who wish to buy more expensive policies with higher coverage will have no choice but to pay increased prices.

  • The higher prices may also discourage some people from buying the adequate amount of coverage they need, and they may choose to settle for an inferior health insurance plan just to save money.

  • Not just health insurance, but the tax has also been increased on other policies such as term insurance, endowment, ULIPs and other forms of insurance due to GST, thereby increasing the cost for customers.

Best Health Insurance Plans Available at Finserv MARKETS

FAQs on Impact of GST on Health Insurance

  • ✔️How much is the GST on medical insurance premiums eligible for 80D?

    A GST of 18% is charged on the health insurance premiums of the policy you choose to buy. 

  • ✔️Can I reduce the GST I have to pay on health insurance premiums?

    No, GST is a flat tax charged on the health insurance service, so there is no choice for customers but to pay an additional tax amount on top of the premium price. 

  • ✔️How can I get insurance at a cheap price?

    You can get a cheaper health insurance policy by:

    • Comparing plans online

    • Choosing a lower sum insured

    • Choosing zero or minimal add-ons

  • ✔️Is GST applicable on health insurance purchased online?

    Yes, GST on medical insurance will be applicable even if you purchase health insurance online. 

  • ✔️Are there any tax benefits of purchasing health insurance?

    Yes, as per Section 80D of the Income Tax Act, 1961, you can get a maximum tax deduction of ₹75,000 on insurance premiums paid for yourself, your family and your parents.