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GST on Health Insurance: Impact and rate changes

Team AckoOct 14, 2022

Almost all products and services offered nationwide, including health insurance, are subject to taxation. Currently, you must pay a tax called GST (Goods and Services Tax) while purchasing these services or products. In this article, let's dive deep into the impact and rate of GST on health insurance and hospital bills.

GST on Health Insurance

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What is GST?

Across the nation, commodities and services are subject to a single indirect tax known as the Goods and Services Tax (GST). Central taxes such as service tax, additional excise and customs duties, and central excise, cesses and surcharges on the supply of goods and services were all replaced by the GST, which serves as a unified tax. This tax is imposed across the nation and includes health insurance on its list of covered products and services.

Health insurance GST rate

When you buy a health insurance policy, you must pay 18% GST on premium payment for the policy. Note that there is an increase of 3% compared to old tax rules applicable to this industry.

How does GST impact your health insurance premium?

Current and advance premiums will be charged GST. This would be regardless of the payment method you select. You can visit the official GST portal for more information. 

Note that these new tax laws won't apply to anybody who bought their policies before the introduction of the GST. As in, they won’t have to adjust for GST. However, when these customers renew their plan, they must pay the GST on the premium as all types of health plans are subject to the Goods and Services Tax. 

Here’s an example to help you understand how GST impacts your health insurance premium. 

Consider you bought a health insurance plan before the introduction of the GST. The sum insured of your policy was Rs. 10 lakhs and the applicable premium was Rs. 25,000 plus taxes. Since, 15% tax was applicable, your final payable amount was Rs. 28,750 (Rs. 25,000 premium + Rs. 3,750 tax). 

If you buy a similar coverage when GST is applicable, the calculations will be as follows.

  • Sum insured: Rs. 10 Lakhs

  • Policy Premium: Rs. 25,000 (assuming the rates are unchanged)

  • 18% GST: Rs. 4,500

  • Final payable amount: Rs. 29,500

Tax Savings Under Section 80D

In addition to protecting you financially in the case of a medical emergency, purchasing health insurance enables you to reduce your tax obligations significantly. You can save up to Rs. 1 lakh under Section 80D of the Income Tax Act if you buy insurance for yourself and your family. 

You are also allowed to deduct the cost of the preventative health checkup in addition to the insurance premium. A maximum exemption of Rs 5,000 is permitted under preventive health checkups annually. Note that the tax-related information is subject to changes as per the annual budget and other similar policies.

Impact of GST on health insurance policy renewal

The following paragraph highlights the impact of GST on Health Insurance.

The implementation of GST has an impact on the renewal of health insurance as well. When renewing your policy, you must pay the same higher tax rate of 18% that’s applicable when getting new coverage. However, GST won't impact your premiums if you bought long-term health insurance before the introduction of this tax. 

Negative impact of GST on a health insurance policy

The disadvantage of GST is that it affects both new and existing policyholders in a way. Therefore, there is no option for policyholders to avoid paying GST on health insurance. When you renew your health insurance coverage each year, you will be required to pay GST at 18% on the premium amount. 

Health insurance is a necessary obligation in the modern world, with or without GST. You must make an investment in a policy that offers sufficient health insurance coverage. The cost of the premium should not be the only factor when purchasing an insurance plan. Other elements include the amount insured, the coverage provided, the availability of cashless hospitals, the simplicity of renewal, etc. Before buying a plan, consider all the aspects, impact of GST on health insurance, compare the policies, and make an informed decision. 

Frequently asked questions

Here are some common questions about GST and its impact on health insurance. If you need more information about how GST will affect your purchase of ACKO Health Plans, please send an email to [email protected], and our team members will help you out.

Can I claim a tax deduction on the GST paid while buying health insurance?

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Yes, under Section 80D, the whole amount paid for health insurance (as well as the GST paid on the insurance premium) qualifies for a tax deduction. This is because the relevant portion of the income tax legislation states that "any amount paid" for medical insurance premiums is eligible for a deduction. However, note that how much tax deduction you will receive will be based on the total paid premium and the tax laws applicable at that time. These deductions-related changes usually take place annually.

Which medical services fall under the GST's taxation purview?

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GST does not apply to outpatient services, medical consultations, etc. This is the impact of GST on health insurance. However, pharmacies must collect GST from outpatients who receive medications, implants, and other consumables. Thus, if you notice, doctor's fees are free of GST, but it applies to medicines.

Is GST applicable on hospital room rent?

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Yes, GST is applicable on hospital room rent. Recently, the rates have been revised. The Goods and Services Tax (GST) Council made a decision to impose a 5% GST on non-ICU hospital rooms. The GST will be applicable if their cost exceeds Rs. 5,000 per day.

Are medical supplies exempt from the GST?

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If medical devices meet specific requirements, such as being included in schedule 3 of the GST Act or the GST regulations, they may be sold without paying GST. For example, cardiopulmonary equipment, medical devices and aids for diabetes and dialysis are exempt from GST.

Is GST applicable on lab tests?

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The GST applicable on lab tests can differ depending upon which test you need. For example, a 12% GST is applicable on a blood test. However, an ultrasound is exempt from this tax.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content, and before making any insurance-related decisions.

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