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GST on Health Insurance: Impact and rate changes

Team AckoJan 17, 2024

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.

Contents

What is GST?
Health insurance GST rate
How does GST impact your health insurance premium?
Tax Savings Under Section 80D
Types of GST on Health Insurance
Health Insurance GST rate HSN codes
Positive impacts of GST on health insurance policies:
How GST is calculated on health insurance premiums:
- Why you need a health insurance plan:
How Care Health Insurance plans can uniquely benefit you:
Impact of GST on health insurance policy renewal
Negative impact of GST on a health insurance policy
Frequently asked questions

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.

Types of GST on Health Insurance

GST on Premiums:

Health insurance policies in India are subject to GST on the premium amount. The GST rate for health insurance premiums typically falls under the 18% tax slab.
When you purchase a health insurance policy, the insurer will charge GST on the premium amount, and you'll see this reflected in your premium payment.

Input Tax Credit (ITC):

Insurance companies can claim Input Tax Credit for the GST they pay on various services, such as legal and accounting services, office rent, and more.
This helps insurance companies reduce their overall GST liability, which could potentially lead to lower premium rates for policyholders.

GST on Services:

In addition to the GST on premiums, there may be GST applicable on various services related to health insurance.
For instance, if you consult a doctor or avail of a medical service that is not covered by your policy, you might be liable to pay GST on that service directly.

Health Insurance Claims:

When you make a claim on your health insurance policy, there usually isn't any GST implication. The claim amount you receive is typically not subject to GST.
However, any services or treatments not covered by your policy but directly paid for by the insurer might have GST implications.

Exemptions and Special Provisions:

In some cases, there might be exemptions or special provisions for GST on health insurance. For example, certain government-sponsored health insurance schemes might have unique tax treatment.

Impact on Policyholders:

Policyholders should be aware that the GST on premiums increases the overall cost of their health insurance policies.
However, it's essential to remember that having health insurance provides financial protection against expensive medical bills, making it a valuable investment.

Tax Deductions:

Policyholders can also enjoy tax benefits under Section 80D of the Income Tax Act in India. You can claim deductions on the premium paid for health insurance policies for yourself, your spouse, children, and parents, subject to certain conditions.

Health Insurance GST rate HSN codes

GST Rate for Health Insurance:

The GST rate for health insurance in India is generally 18%. This means that when you pay your health insurance premium, 18% of that amount is the GST component, which goes to the government as tax.

HSN Code for Health Insurance:

HSN codes are used to classify goods and services for GST purposes. Each type of product or service has a unique HSN code.

Health insurance falls under the service category, and it has its specific HSN code 997133.

Here's a more detailed breakdown of the HSN code for health insurance:

HSN Code: 997133

Description: Financial and related services, including insurance services.

This HSN code encompasses a wide range of financial and insurance services, not just health insurance. It covers services related to life insurance, general insurance, reinsurance, and health insurance, among others.

Why HSN Codes Matter:

HSN codes are essential for proper tax reporting and accounting.

They help in:

Tax Calculation: HSN codes assist in determining the correct GST rate for a particular service. In the case of health insurance, the HSN code 997133 helps in identifying it as a service and applying the appropriate GST rate of 18%.

Input Tax Credit (ITC): For insurance companies, using the correct HSN code is crucial to claim Input Tax Credit on the GST they pay for various services and expenses related to their operations. This can reduce their overall tax liability and potentially benefit policyholders through lower premium rates.

GST Filing: Proper HSN coding ensures that tax returns and reports are accurate, which is essential for regulatory compliance and transparency.

Policyholders and GST:

As a policyholder, you don't need to worry about HSN codes directly. Your insurance company is responsible for correctly categorizing and reporting the GST on your premiums.

However, understanding the GST rate and how it affects your premium is essential. The 18% GST on health insurance premiums increases the cost of your policy. Nevertheless, having health insurance is crucial for financial protection in case of medical emergencies, making it a valuable investment despite the GST component.

In conclusion, the GST rate for health insurance is 18%, and the HSN code for health insurance services is 997133. These elements are vital for tax compliance and reporting by insurance companies. Policyholders should be aware of the GST on premiums and the financial benefits of having health insurance, even with the added tax.

Positive impacts of GST on health insurance policies:

Uniform Taxation:

GST has replaced the complex system of multiple taxes that existed before. It has simplified the taxation structure by providing a uniform tax rate for health insurance premiums. This simplification reduces the administrative burden on insurance companies and makes it easier for policyholders to understand the tax implications.

Clarity in Taxation:

Under the GST regime, health insurance premiums are subject to a clear and consistent tax rate of 18%. This transparency ensures that policyholders are aware of the tax component in their premiums, making it easier for them to plan their insurance expenses.

Input Tax Credit (ITC):

Insurance companies can claim Input Tax Credit on the GST they pay for various services and expenses related to their operations. This allows insurers to reduce their overall tax liability. In some cases, insurance companies may pass on these savings to policyholders by offering competitive premium rates.

Reduced Cascading Taxes:

GST eliminates the cascading effect of taxes that existed in the previous tax regime. Under GST, taxes are applied only to the value addition at each stage of the supply chain. This reduction in cascading taxes can lead to cost savings for insurers, which may benefit policyholders in the form of lower premiums.

Promotion of Compliance:

The GST system encourages compliance and transparency. Insurance companies are required to accurately report and pay GST on their premiums and services. This ensures that insurers adhere to tax regulations, reducing the likelihood of tax evasion or fraud.

Digital Transformation:

GST has accelerated the digital transformation of the insurance industry. Insurance companies have invested in technology to streamline their tax-related processes, making it easier for policyholders to purchase and manage their health insurance policies online.

Increased Tax Deductions:

Policyholders can claim tax deductions on health insurance premiums under Section 80D of the Income Tax Act in India. While this benefit existed before GST, the transparency in tax calculations and compliance may encourage more individuals to invest in health insurance policies to avail of tax benefits.

Improved Customer Service: With the simplification of taxation under GST, insurance companies can focus more on providing better customer service and enhancing their insurance products. Policyholders may benefit from improved customer support and more tailored insurance options.

How GST is calculated on health insurance premiums:

Determine the GST Rate:

The GST rate for health insurance premiums in India is typically 18%. This means that 18% of your premium amount is the GST component.

Identify the Premium Amount:

Your health insurance premium is the amount you pay to the insurance company for your policy coverage. This is the base amount on which GST will be calculated.

Calculate GST Amount:

To calculate the GST amount on your health insurance premium, you can use the following formula:

GST Amount = (Premium Amount * GST Rate) / 100

For example, if your health insurance premium is ₹10,000, the GST amount would be:

GST Amount = (10,000 * 18) / 100 = ₹1,800

Calculate the Total Premium:

The total premium you need to pay is the sum of the premium amount and the GST amount. This is the amount you will pay to the insurance company.

Total Premium = Premium Amount + GST Amount

Using the example above:

Total Premium = ₹10,000 + ₹1,800 = ₹11,800

Pay the Total Premium:

You will pay the total premium amount, which includes the base premium and the GST amount, to the insurance company. The insurance company will then remit the GST component to the government.

Why you need a health insurance plan:

Financial Safety Net:

Health insurance acts as a safety net for unexpected medical expenses. It covers a significant portion of your healthcare costs, including hospitalization, surgeries, diagnostic tests, and medications. Without insurance, these expenses can be financially crippling.

Protection Against High Medical Costs:

Healthcare in many countries, including the United States, can be incredibly expensive. A single medical emergency or a major surgery can lead to astronomical bills. Health insurance ensures that you don't have to drain your savings or go into debt to pay for necessary medical treatments.

Access to Quality Healthcare:

Health insurance often provides access to a network of healthcare providers, including doctors, hospitals, and specialists. This means you can receive timely medical care and consult with experts, improving your chances of a full recovery.

Preventive Care:

Many health insurance plans cover preventive services such as vaccinations, screenings, and wellness check-ups. These preventive measures can detect health issues early, making treatment more effective and less costly.

Coverage for Chronic Conditions:

Health insurance is essential for managing chronic conditions like diabetes, hypertension, or asthma. It ensures you can afford the regular medications and doctor visits needed to control these conditions, reducing the risk of complications.

Family Protection:

Health insurance plans often cover your entire family, offering peace of mind that your loved ones are also protected in case of illness or injury.

Legal Requirement:

In some countries, having health insurance is a legal requirement. Failing to comply with this mandate can result in fines or penalties.

Employer-Sponsored Plans:

Many employers offer health insurance as part of their benefits package. Having employer-sponsored coverage can be cost-effective and convenient.

Tax Benefits:

In some countries, premiums paid for health insurance are eligible for tax deductions. This can lower your overall tax liability.

Mental Health Coverage:

Mental health issues are as crucial as physical health. Health insurance plans increasingly offer coverage for mental health services, ensuring you have access to therapy and counseling when needed.

Peace of Mind:

Knowing you have health insurance can reduce stress during challenging times. You can focus on recovery rather than worrying about medical bills.

Risk Management:

Health insurance is a form of risk management. It helps you mitigate the financial risks associated with unexpected health issues, accidents, or emergencies.

How Care Health Insurance plans can uniquely benefit you:

A Dedication to Care:

Care Health Insurance lives up to its name by providing not just insurance but genuine care. These plans are designed with your best interests in mind, focusing on your health and peace of mind.

Comprehensive Health Coverage:

Care Health Insurance plans offer comprehensive coverage that spans the spectrum of healthcare needs. From routine check-ups to complex medical procedures, you're covered, ensuring that your health takes center stage.

Tailored Policies for Your Needs:

These plans recognize that every individual's healthcare requirements are unique. With Care Health Insurance, you have the power to customize your policy to match your specific health and financial goals.

Effortless Cashless Hospitalization:

Care Health Insurance removes the hassle from hospitalization. The cashless facility ensures that you can focus on recovery while the intricate financial dealings are seamlessly handled by the insurer.

A Network of Care Excellence:

Care Health Insurance boasts an expansive network of top-tier healthcare providers. This means you have access to the best doctors and hospitals, making high-quality medical care easily accessible.

Fortified Protection Against Critical Illnesses:

Care Health Insurance plans go the extra mile by offering robust coverage for critical illnesses. This unique feature ensures that you receive a lump-sum payment upon diagnosis, allowing you to face life's challenges with financial strength.

Nurturing Maternity and Newborn Care:

The plans also embrace your family's growth journey. With maternity benefits, you can celebrate the arrival of a new family member without worrying about the associated healthcare expenses.

Benefits for Staying Healthy:

Care Health Insurance rewards your commitment to health with no-claim benefits. This unique feature acknowledges your wellness efforts and rewards you with incentives such as premium reductions or increased coverage.

Promoting Wholesome Wellness:

Care Health Insurance goes beyond illness coverage. It champions wellness with various initiatives, including discounts on health check-ups and access to telemedicine services, underscoring its commitment to your well-being.

Financial Prudence with Tax Benefits:

By investing in Care Health Insurance, you are not only ensuring your health but also making a prudent financial move. You can enjoy tax benefits under the Income Tax Act, making it a win-win choice.

24/7 Support, Always Caring:

With Care Health Insurance, caring is not just a word; it's a commitment. Their 24/7 customer support is a testament to their unwavering dedication to your well-being.

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?

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?

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?

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?

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?

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.