If you have ever been to a hotel or a restaurant, then while paying the bill, you might have seen the final bill with the added GST (Goods & Services Tax). It is a tax that we usually give in exchange for the goods or services purchased from the vendor.
Though the tax is now limited to food & groceries, your health insurance also comes under GST. Implemented in 2017 by the Government of India, it’s now imposed on the health insurance sector to provide a wide range of benefits to the policyholder.
In the scenario of health insurance, whenever any individual buys or pays the premium for their insurance, they will have to pay a certain GST. On the other hand, if you fall under the EWS (Economically Weaker Section), you might get some relief while opting for government-based health insurance plans.
Are you planning to buy a health insurance policy? If so, then get ready to pay 18% GST under the HSN Code 997133 while paying your policy premium. It’s a thing of the past when the percentage used to be on the lower side, i.e., 15%. But now, you will have to pay an additional 3%.
Types of GSTs in Health Insurance
Here are the different types of GSTs that one should know about before buying a health insurance policy.
- Central GST or CGST
This is the most common GST and usually takes place during the interstate (within a state or Union Territory) sale of a medical policy. Suppose, you want to buy a medical policy for your family within a state, then you need to pay GST laid down by central GST. It is nothing but a part of GST charged along with the state GST by the central government.
- State GST or Union Territory GST
This kind of tax is accumulated by the government when there is a sale or purchase of a health insurance policy within a state or union territory. The tax is collected by a particular state or union territory.
- Integrated GST (IGST)
This GST is imposed by the government on the sale of a medical policy to a person located in a different state or UT. In other words, it could be said that it combines the charges of a state GST and central GST.
For example,
Mr. Shyam residing in New Delhi, is looking to buy a health insurance policy for his parents living in Uttar Pradesh. Though he is eligible to buy a medical policy for his senior citizen parents, he will now have to pay additional GST. The reason behind this is that he is purchasing a policy for his parents living in a different state. Since the government is different, it will come under IGST.
Impact of GST On our Health Insurance
To know the impact of GST on health insurance, we’ll have to go back to understand the things before the implementation of GST.
Before GST, individuals had to pay 15% of service tax on buying their health insurance policies from their respective companies. If we break the taxes, then;
- 14% of taxes go to the Basic Service Tax,
- 0.5% of taxes go to Swachh Bharat Cess (SBC)
- Lastly, and 0.5% of taxes go to the Krishi Kalyan Cess (KKC).
Since the government launched the GST, things changed to a great extent.
Now, customers have to pay GST of up to 18% depending on the state or UT they are in while buying a medical policy. With GST, the prices of health policies have risen higher. Customers will now have to pay an additional amount to purchase or pay a premium payment for their medical policy.
But here’s the catch!
If you think that GST is only applied to purchasing the policy or paying the premium, then you are probably mistaken! This GST is applied to daycare treatments, pre- and post-hospitalisation fees, OPD costs, diagnostic tests, and more.
Not only has it impacted customers but it also created an impact on health insurance companies, as well. To oppose the tax, they had even given the proposal to the committee in May 2021-22. However, they denied the proposal of minimising the premium amount on all kinds of health insurance policies.
Benefits of GST on health insurance
Listed below are the key features and benefits of GST on health insurance policies.
- Eliminates Complex Taxation System
One of the key benefits of GST on health insurance policies is that it eliminates the complex tax system, which used to be a real headache even for the government, as well. Since the implementation of GST, it made a systematic taxation system for health insurance. Furthermore, it was even difficult for customers to keep track of the additional taxes. Not only does it kill your time but it is a major hassle that nobody wants to get into. Now, even a basic customer can understand the tax implications without consulting any professional.
- Boost Compliance
One of the biggest benefits of the implementation of GST is that it promotes transparency and compliance. No matter what kind of policy the insurer is selling, they are required to provide timely and proper reports regarding their policies. Not only does it ensure that they follow the necessary rules and regulations laid down by the government but it also ensures they won’t commit any kind of fraud.
- Promotes Digitization
Another major benefit of GST is that it revolutionised how the insurance sector works in India. Now, customers can easily make use of online premium calculators to calculate the amount including GST that they need to pay in addition to their policy purchase or premium payment.
- Better Customer Support
Since insurance companies don’t have to worry about the implementation of a range of taxes on their insurance policies, they have streamlined their support system. This ensures quick and enhanced customer support so that whether they want to buy a policy, make a premium payment, or cancel their policy, they can easily do it using their smartphone or laptop.
Note: The only disadvantage of GST is that it has increased the cost of premiums.
Understanding GST Rate on Health Insurance
To understand the rate of GST on health insurance, let’s take the example of a middle-class man, named Mr. Deshmukh Pandey.
Meet Mr Deshmukh Pandey who is 35 years old, and working as a senior data analyst at Zimbo Technologies, New Delhi. Since he lost his dear one in the COVID-19 pandemic, he decided not to overlook the importance of a health insurance policy. He now doesn’t have any idea about the implementation of GST in the insurance sector.
Let’s look at the amount that he needs to pay before and after the GST implementation.
Suppose, he wants to buy health insurance for himself that costs Rs. 20, 000. If he had bought the insurance 10 years before the implementation of GST, then he had to pay 15% tax. Then, the final amount will be;
(15% tax on 20,000) + 20,000 = Rs. 23000
After GST,
Now, the amount will be calculated at 18% so,
(18% tax on 20,000) + 20,000= Rs. 23600
So, Mr Pandey will have to spend Rs. 600 extra on buying health insurance for himself. If he decides to include his family, then the amount will increase.
Health Insurance GST rate & HSN codes
Here’s the complete GST on health insurance along with HSN codes.
- Health Insurance policies of all kinds (997133): 18%
- For Universal Health Insurance Scheme (9971 or 9991): Nil (As per the GST law 2017, services related to general insurance business under the Universal Health Insurance Plan are exempt from paying any kind of GST).
- Niramaya Health Insurance Scheme run by Trust Set up (9971 or 9991): Nil (There is no need to pay any GST).
Impact of GST on Health Insurance Policy Renewal
There is no denying the fact that the effect of GST can also be seen in the renewal process. If any policyholder wants to renew their policy, then they will have to pay a GST of 18%. On the other hand, if they don’t want to pay it, then the insurance company will not renew it, no matter how many years you are with them.
Frequently Asked Questions
Yes, the rent for hospital rooms is subject to GST.
Depending on the test you require, different labs have different GST rates.
After the introduction of Goods and Service Tax or GST on health insurance, new policyholders and those who renew their policy will have to pay a higher premium amount; however, those who purchased longer-term policies before the GST came into force would not be affected by the GST. Having said this, the premium they pay upon renewal would be based on the current tax rates.
The GST is only refunded if a person sells products at lower tax rates and pays a higher tax rate; however, the GST for health insurance is non-refundable.
Yes, the entire GST paid on health insurance would qualify for a tax deduction under Section 80D of the Income Tax Act. Any amount paid for bearing the medical insurance premiums is eligible for an income tax deduction. The extent of deduction will depend upon the total paid premium and the relevant tax laws that change annually at the time of the Union Budget.
Under Section 17(5)(b) of the CGST Act, a business cannot claim GST paid on health insurance as an input tax credit or ITC. However, it can claim ITC on GST on health insurance for its employees only if it is mandated under any labour law in India that it is obligatory to buy health insurance policies for the employees. Further, ITC remains available where GST is paid on the premium paid on employee accident insurance.
No, GST rates on health insurance premiums are 18% all across India.
