The government of India introduced the Goods and Services Tax (GST) in 2017. The main objective of introducing GST was to remove the cascading effects of double taxation that existed earlier. Just as with several other goods and services, GST is also levied on health insurance. The GST on health insurance is levied at a rate of 18%.
Before we move on to understand the impact of GST on health insurance, let us know more about GST.
What is the Goods and Services Tax?
Goods and Services Tax, or GST, is an indirect tax that is charged for the consumption of various goods and services like household items, textile, food, electronic items, transportation services, real estate, insurance, etc. The GST can be divided into two parts, State GST (SGCT) and Central GST (CGST). This is done for the easy division of revenue between the Central Government and the State Governments. The GST is levied under five slabs- 0%, 5%, 12%, 18%, and 28%.
Before the implementation of GST, the service tax levied on health insurance products was 15%. This consisted of a basic service tax of 14%, a Swachh Bharat Cess of 0.5% and a Krishi Kalyan Cess of 0.5%. After the introduction of GST, the tax levied on health insurance is at 18%. This has led to an increase in the overall insurance premium on health insurance. Let’s look at an example to get a better understanding:
A health insurance policy with a coverage of ₹5 lakh and a premium of ₹10,000 will be impacted as follows:
Before GST, the service tax applicable on health insurance was 15% of the premium. So, the total premium of the above policy would be
(15% of 10,000) + ₹10,000 = ₹11,500
After the introduction of GST, the applicable service tax is 18%. Hence, the new premium will be
(18% of 10,000) + ₹10,000 = ₹11,800
Advantage of GST on Health Insurance
The introduction of GST on health insurance has led insurance providers to offer various health insurance plans at affordable premiums. This has been a big relief for policy buyers as the medical costs are rising steadily. Today, with the affordable premiums, people are purchasing health insurance plans more than ever.
Disadvantage of GST on Health Insurance
As seen above, the increase in the service tax from 15% to 18% has led to an increase in the payable premiums for health insurance plans after the implementation of the GST regime. Moreover, people who have bought health insurance plans cannot avail input tax credit.
Health Insurance Tax Benefits
You can avail health insurance tax benefits. The GST charged on health insurance plans is an indirect tax. This amount can be claimed as a tax deduction. For example, a person purchases a health insurance plan of ₹10 lakh with a premium of ₹17,000. The total premium after adding up GST of 18% becomes ₹20,060. This amount can be claimed for getting a tax deduction under Section 80D.
Given the changing lifestyle and increasing medical costs, getting a health insurance plan for yourself is imperative. It is extremely important to understand that by paying the health insurance premium along with the GST charges, you are getting a financial cover for yourself that will cover the medical expenditure you may incur in the future. And given the increase in competition in the market, you can now get affordable health insurance plans to protect yourself and your family financially during a medical emergency.