The Complete Guide to Understanding GST on Health Insurance in India (2022)

The Complete Guide to Understanding GST on Health Insurance in India (2022)

Health insurance is crucial for protecting yourself and your family from massive medical bills. But with the implementation of Goods and Services Tax (GST) in 2017, the taxation on health plans has increased. This has left many confused about how GST affects their insurance premiums.

This comprehensive guide will explain everything you need to know about GST on health insurance in India. You’ll learn about GST rates, how it impacts your premiums, tax saving options, and even how to efficiently buy health plans in the GST regime.

So if you want to make well-informed decisions and save money on your health plans, read on!

Introduction: How GST Has Impacted Health Insurance in India

The Goods and Services Tax (GST) regime has led to significant changes in India’s health insurance sector. Implemented in 2017, this unified taxation system subsumed several previous indirect taxes, including service tax and excise duties.

Health insurance premiums now attract 18% GST, a 3% increase from the previous 15% service tax. This has driven up policy costs for both new customers and renewing policyholders.

But how exactly has GST affected health plans in India? Here’s a quick overview before we dive into the details:

  • 18% GST applicable on all health insurance premiums
  • Increased premium costs for customers
  • Added tax burden on insurance companies
  • Greater transparency in taxation
  • Input Tax Credit benefits for insurers
  • Promotes digital adoption in the sector

While GST has increased costs, it has also streamlined taxation and encouraged transparency. Further, we’ll explore both the positive and negative impacts of GST on health insurance in India.

Armed with this knowledge, you can make prudent decisions while buying or renewing your health plans. But first, let’s start by understanding what GST actually is.

What is GST and How Does it Work?

Goods and Services Tax or GST refers to the indirect tax levied on the supply of goods and services in India. Implemented in 2017, it replaced a web of indirect taxes like VAT, service tax, excise duties, etc. charged by the central and state governments.

Some key points about GST:

  • Nationwide unified taxation system
  • Levies tax on the supply of goods and services
  • Has 4 tax slabs – 5%, 12%, 18% and 28%
  • Came into effect from 1st July 2017 under the GST Act 2017
  • GST replaces several previous indirect taxes and duties
  • Governed by the GST Council comprising state finance ministers

GST essentially consolidates the myriad central and state indirect taxes into a unified tax system. The tax is levied at each stage of the supply chain, but with input tax credit, taxes already paid can be claimed back. This reduces the cascading effect of layered taxes.

Health insurance plans come under the ambit of GST, falling under the 18% tax slab. Now let’s see how GST is applicable to health insurance premiums.

GST Rates Applicable on Health Insurance in India

Health insurance premiums attract an 18% GST rate under the new taxation regime. This means an extra tax burden of 3% over and above the previous 15% service tax.

This 18% GST rate applies to:

  • All health insurance plans – individual, family floater, senior citizen, critical illness etc.
  • Both new policies as well as renewals
  • Premiums paid via any mode – online, cheque, cash etc.
  • Both individual and corporate health plans

So whether you purchase a new health plan or renew your existing policy, you have to pay 18% GST on the premium.

There are no exemptions or special provisions for health insurance under GST. This increased tax rate is applicable across the board.

How Does GST Impact the Cost of Your Health Insurance?

The 18% GST directly increases your health premium’s tax component, leading to higher overall costs. Let’s see two examples to understand the impact:

Scenario 1 – New Health Insurance Plan

Sum insured: ₹5 lakhs

Base premium amount: ₹10,000

Applicable GST: 18%

GST amount on ₹10,000 at 18%: ₹1,800

Total premium payable: ₹10,000 + ₹1,800 = ₹11,800

Scenario 2 – Existing Health Plan Renewal

Sum insured: ₹5 lakhs

Base renewal premium: ₹11,000

Previous service tax of 15%: ₹1,650

New GST of 18%: ₹1,980 (18% of ₹11,000)

Total renewal premium: ₹11,000 + ₹1,980 = ₹12,980

For both new plans and renewals, the 18% GST pushes up the tax amount and final premium costs. Existing policyholders could see an increase of ₹300-500 in their renewal premium.

Over time, this added GST burden on insurers may compel them to raise base premiums too. So in the long run, health plans can become even more expensive thanks to GST.

Tax Savings on Health Insurance Under Section 80D

The increased premium costs can be balanced out to an extent by claiming tax deductions under Section 80D. This section allows tax deductions on health insurance premium paid for yourself, spouse and dependant children.

You can claim deductions up to ₹25,000 for regular health plans. An additional deduction of ₹50,000 is applicable for buying policies for parents over 60 years of age.

Further, ₹5,000 can be claimed as deduction for preventive health check-ups annually. NRIs, senior citizens and very senior citizens have higher deduction limits.

So make sure to claim these tax deductions at the time of filing returns. It will help offset the higher costs due to GST to some extent.

Types of GST Applicable on Health Insurance

Broadly, there are three kinds of GST applicable in health insurance:

  1. GST on Premiums

This 18% GST is applicable on all health premiums paid by policyholders. It is added to your premium amount and paid to the insurer.

  1. Input Tax Credit

Insurers can claim input GST credit for taxes paid on their business-related purchases. This helps lower overall tax liability and operating costs.

  1. GST on Medical Services

If you avail any medical service not covered by insurance, you may need to pay GST directly to the hospital.

While GST on premiums causes an added burden, input tax credit gives some benefit to insurance companies. Let’s look at both these aspects in detail.

GST on Premiums – HSN Codes and Impact

Health insurance premiums fall under HSN Code 997133 of the GST Common Service Tariff. This pertains to all kinds of insurance and reinsurance services.

The applicable tax rate under this head is 18% which is charged on health premiums. This additional tax burden can increase costs for customers.

Some ways this GST on premiums impacts various stakeholders:

For policyholders:

  • Increases overall premium payouts
  • Renewals also attract 18% GST

For insurance companies:

  • Additional tax compliance burden
  • Increased operating costs
  • Need to modify management systems

For the government:

  • Widens tax revenue base
  • Increased digitization and formalization of the sector
  • Easier to track compliance due to e-invoicing

While adding to the tax outgo, GST also makes the system more structured and transparent. This leads to long-term gains for all parties.

Input Tax Credit Under GST

Insurance companies incur costs and taxes during their regular business activities. Under GST, they can claim input tax credit for taxes already paid on business expenses.

Some common expenses on which input GST can be claimed are:

  • Taxes paid on office supplies like stationery, equipment etc.
  • GST paid on office maintenance and utilities
  • Tax on consulting, legal and outsourced services
  • GST paid while procuring reinsurance
  • Tax on employee benefits like health policies, medical reimbursements

This input tax credit mechanism reduces the overall GST burden on insurers. It may allow them to offer competitive premium rates to policyholders.

However, certain costs like employee salaries, rent etc. do not qualify for input tax credit. But still, the input credit benefits add to the positives of GST for insurance firms.

GST on Medical Services Not Covered by Insurance

Another area where GST kicks in is when you avail any medical service not covered by your health insurance policy.

For instance, if you get a diagnostic test done at a lab on your own, you have to pay GST on the bill amount. Or if you undergo a treatment not covered by your insurer, the hospital may charge GST.

The GST levied on such uncovered medical expenses is based on the specific service. Diagnostic tests attract a GST of 18% while medicines are taxed at 5%.

So while making claims, policyholders should check if any GST is applicable on the excluded services as per current regulations.

The Positive Impacts of GST on Health Insurance

While increasing costs, GST has also led to some benefits for India’s health insurance ecosystem. Let’s examine these positives of GST on health plans:

Simplified taxation structure

GST has subsumed a complex web of multiple indirect taxes like service tax, VAT, excise etc. It has brought all health plans under a simple, unified tax regime.

Improved transparency and compliance

The digital invoicing mandated under GST creates transparency. It reduces tax evasion and drives greater compliance from insurers.

Faster digitization

GST has accelerated the digital transformation of India’s insurance sector due to mandatory e-invoicing and online tax filing.

Reduced tax on reinsurance

Reinsurance services previously attracted a service tax of 15%. Under GST, the rate is lower at 12%, reducing costs for insurers.

Input tax credit benefits

Input credit allows insurers to lower tax liability and potentially offer competitive premiums to policyholders.

Focus on customer service

With GST streamlining taxation, insurers are free to focus more on enhancing services and products for policyholders.

GST has certainly increased the tax burden on health insurance consumers. However, it has also led to efficiency gains, transparency and increased formalization of the industry.

How is GST Calculated on Health Insurance Premiums?

Wondering how the 18% GST is calculated on your premiums? Here is a quick 4-step process:

Step 1: Identify the base premium amount (excluding taxes)

Step 2: Apply the GST rate, which is 18%

Step 3: Calculate the GST amount. GST Amount = (Premium x 18%) ÷ 100

Step 4: Add GST amount to base premium to derive the total payable

Let’s understand this via an example:

Base premium amount: ₹15,000

GST rate: 18%

GST amount = (15,000 x 18%) ÷ 100 = ₹2,700

Total premium payable = ₹15,000 + ₹2,700 = ₹17,700

This shows how 18% GST significantly inflates the base premium amount. But the right health plan is still critical despite the tax implications.

Why Do You Need Health Insurance in India?

In a country like India, health insurance is a necessity and not just a choice. With no social security, medical inflation is rising at 15-20% annually.

Hospitalization costs are now massive with expenses like:

  • ICU charges of ₹15,000-30,000 per day
  • Angioplasty costing ₹2.5-3 lakhs
  • Knee replacement surgery for ₹5-6 lakhs
  • Cancer treatments running to ₹15-20 lakhs

As per National Sample Survey Office (NSSO), over 80% of India’s population has no health insurance. Without insurance, most families are only 1 illness away from financial devastation.

Some compelling reasons why health insurance is absolutely essential:

It protects against catastrophic healthcare costs

By distributing risk across many insured individuals, health plans ensure you get coverage for hospital bills running to lakhs.

Covers expenses of pre- and post-hospitalization

Good health plans don’t just cover hospitalization but also medical costs incurred 30-90 days before and after.

Cashless claim settlement

You don’t pay anything out of pocket for covered expenses. Insurer directly settles hospital bills.

Covers day care procedures

Many advanced non-surgical treatments are now done on an out-patient basis and covered by insurers.

Tax benefits up to ₹75,000

Premiums paid are exempt under Section 80D of the Income Tax Act.

Facilitates access to better healthcare

Cashless facility at top hospitals ensures you get the best treatment.

Peace of mind during health crises

Health insurance alleviates financial stress during medical emergencies.

Protection for entire family

Individual and family floater plans safeguard the health of your loved ones.

While GST has increased premium costs, the benefits clearly outweigh the added tax burden. Comprehensive health insurance is the only way to protect your finances and access top-quality healthcare.

How Does Filingwala.com Help You Buy the Right Health Plan?

With GST making health plans costlier, buying adequate coverage at optimal prices has become tougher for Indian families.

This is where Filingwala.com comes into the picture!

Filingwala.com is India’s top financial services marketplace catering to all your accounting, taxation and compliance needs under one roof.

As part of our services, we also assist you in:

  • Choosing the right health insurance policy as per your coverage needs and budget
  • Locating suitable plans by leading national and regional insurance providers
  • Optimizing premium costs and availing all applicable discounts
  • Navigating exclusions and making an informed purchase decision
  • Claiming tax deductions under Section 80D
  • Managing policy renewals

With Filingwala.com as your health insurance advisors, you benefit from:

  • Expert analysis of your insurance needs
  • Comparing 10+ top health plans from various insurers
  • Identifying plans with lowest premiums
  • Ensuring adequate coverage for hospitalization, OPD and critical illness
  • Multi-policy and multi-year discounts of up to 30%
  • Choosing ideal sum insured and deductibles
  • Smoother renewals and assistance with claims
  • End-to-end policy management

By outsourcing your health insurance needs to Filingwala.com, you get the right coverage at the best price, even in the post-GST era. We take care of evaluating numerous plans, negotiating discounts, explaining policy terms, and getting you maximum savings.

So what are you waiting for? Consult Filingwala.com experts today to buy cost-effective, comprehensive health insurance for yourself and your loved ones!

Impact of GST on Health Insurance Renewals

GST not just hits new policy buyers but also existing policyholders renewing their health plans. Earlier, customers renewing policies issued before GST implementation were exempt from paying the new 18% tax.

But as per a recent circular, insurers will now have to collect GST even from such renewing policyholders. So existing plans will also be subject to the 18% tax on renewals after GST rollout.

This applies even if you originally bought the policy under the previous tax regime. The GST has to be paid in a phased manner – 9% collected in FY 2018-19 and the balance 9% from FY 2019-20.

So in effect, the new GST rate becomes uniformly applicable to all health insurance renewals, irrespective of purchase date.

Let’s see an example:

Policy Details

Purchase Date: June 2017 (pre-GST regime)

Sum Insured: ₹3 lakhs

Base Premium: ₹8,000

Service Tax: 15% = ₹1,200

Total Premium Paid: ₹8,000 + ₹1,200 = ₹9,200

Renewal in 2019

Renewal Premium: ₹8,500

Phase 1 GST @ 9% = ₹765

Phase 2 GST @ 9% = ₹765

Total Tax = ₹1,530 (18% of ₹8,500)

Final Premium = ₹8,500 + ₹1,530 = ₹10,030

So a customer who paid only ₹9,200 earlier has to shell out ₹10,030 on renewal, despite buying the policy pre-GST.

This increased tax burden can compel insurers to raise premium costs too. So renewing your health plan after GST is likely to be costlier. But allowing your policy to lapse is riskier – so continue renewing it even if costs are higher.

The Downsides of GST on Health Insurance

While GST has helped streamline indirect taxation and abolished cascading taxes, there are some definite downsides for health insurance consumers.

Here are some of the drawbacks of GST that add to policyholders’ costs:

Higher premiums

The increase from 15% service tax to 18% GST has directly inflated policy costs for customers.

Renewal premiums also costlier

GST has now been made applicable on renewals of existing policies too, leading to higher payouts.

Rise in treatment costs

Hospitals may levy GST on medical services not covered by your health plan, hiking your overall treatment cost.

Insurers may raise base premiums

If the increased tax burden strains insurer profits significantly, they may hike base premiums to maintain profitability. This will compound costs for policyholders over the long-term.

No exemptions for healthcare

Unlike education and basic food items, healthcare does not get any special exemptions from GST. This move could have provided some relief on premiums.

Compliance difficulties for small insurers

GST compliance in terms of registration, timely filing and e-invoicing can be challenging for smaller, regional insurance firms.

Added compliance load for policyholders

Customers now need to save and submit their GST invoices while filing claims or income tax returns. This increases paperwork requirements.

Can discourage insurance adoption

The added tax cost can deter lower-income groups from investing in health insurance, leaving them financially exposed.

So while GST makes the system more organized, the additional burden on policyholders and compliance pressures on insurers can’t be ignored. However, the pros of health plans still outweigh the cons of GST.

Frequently Asked Questions on GST and Health Insurance

Here are some common GST-related queries answered for health insurance consumers:

Q1. Does GST also apply when I renew my existing health policy?

Yes, 18% GST will be levied even on renewals of policies originally purchased before GST implementation.

Q2. How much GST will I have to pay if I take a family floater plan?

Irrespective of the type of policy, the applicable GST will be 18% of the total premium amount.

Q3. Can I claim input tax credit on health insurance GST?

No, only registered businesses supplying goods/services can claim input tax credit on GST paid. As an individual, you cannot claim input credit.

Q4. Is GST charged on medical expenses not covered by insurance?

Yes, hospitals may charge GST on any treatment or diagnostic service not covered under your health insurance plan.

Q5. Does GST also apply to health plans bought online?

Whether bought online or offline, all health policies will attract 18% GST on the premium payable.

Q6. How do I claim tax deduction on health premium and GST?

While filing ITR, claim deduction on the total amount paid towards premium, including GST, under Section 80D.

Q7. Is there any provision to avoid paying GST on health premiums?

No, the 18% GST is mandatory on all health plans without exceptions. You cannot avoid paying it.

Q8. Will healthcare services like teleconsultations also have GST?

No, online doctor consultation, diagnostic tests etc. are exempt from GST.

Q9. Are Ayushman Bharat premiums or other government schemes exempt?

Most government health schemes are exempt from GST under specific provisions.

Q10. Can insurers offer discounts to offset the GST impact?

Yes, insurers can offer discounts or loyalty bonuses to help policyholders lower the effective premium amount.

We hope these answers help you understand GST and how you can buy the best health plan while maximizing savings!

The Final Word

The implementation of GST has significantly altered India’s health insurance landscape. For consumers, it has led to an increase in premium costs – but has also brought standardization and transparency.

There’s no doubt that GST has increased the tax burden on health plans. But with the right insurer offering optimal coverage and discounts, you can still find affordable coverage for your family.

The key is to harness the expertise of advisors like Filingwala.com, who can help identify the most suitable health insurance products and provide end-to-end policy administration. This ensures you get adequately covered without breaking the bank!

So focus your energy on finding the ideal health plan rather than worrying about GST rates. Ultimately, being uninsured puts you at the biggest financial risk – not GST!

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