GST Relief on Health Insurance Premiums: What You Need to Know?

New Delhi: Reductions of the GST on health insurance premiums would reduce the cost of health care coverage substantially, thereby making the coverage more affordable for individuals, families and seniors. The current GST of 18 per cent makes premiums expensive and deters many from buying insurance. Reducing or removing the GST would encourage broader health insurance uptake, improve access to healthcare and help take the strain off of people’s finances during a medical crisis. While there are implementation challenges, the payoffs, including low-income and senior policyholders, could make people more in the habit of procuring the best health insurance suited to their needs.

GST Relief on Health Insurance Premiums: What You Need to Know

During medical emergencies, health insurance is most needed because healthcare costs are skyrocketing. Importantly, however, health insurance premiums are themselves subject to a Goods and Service Tax (GST) of 18%, making the total bill very expensive indeed.

Very recently there was a talk of allowing GST relief on health insurance premiums to ensure that quality healthcare is available to everyone. The implications of GST relief for health insurance have been explored in this blog.

What is GST on Health Insurance?

While this GST rate is consistent with other services, it is financially challenging, as health insurance is costly to purchase and grows more expensive over time due to ever-increasing coverage needs with age. To take an example, an 18% GST against a premium of ₹20,000 adds ₹3,600 to the total amount, resulting in a cost of ₹23,600.

Why is GST Relief on Health Insurance Premiums Important?

Since the topic of health insurance itself brings GST relief, it has been of interest that this could make health insurance more affordable and accessible to a larger population. The benefits of reducing or exempting GST on health insurance premiums include:

⦁Reduced Premium Costs-  Lower GST will directly lower the amount spent on health insurance premiums, allowing people to afford quality coverage.

⦁Encouragement to Buy Health Insurance- Some more would enter the insurance market as costs come down, increasing the share of health insurance across the country. Given the effect of the pandemic on healthcare expenses, the government’s GST Council is considering a reduction in GST on the health insurance policy.

GST Relief and its effect on Health Insurance Premiums

Remove or eliminate GST on health insurance premiums, and money can be saved in serious amounts for individuals, families, and businesses. Here’s a breakdown of the potential impact:

⦁Lower Premium Costs - 
Policyholders pay significantly more than the base premium with an 18 per cent GST rate. Reducing or eliminating GST would make health insurance affordable for millions now priced out of the market. Reducing GST to 5% would make the price of health insurance 13% cheaper for every policyholder.

⦁Improved Insurance Penetration- 
Only around 37 percent of the population in India has health insurance coverage and the coverage for rural and economically disadvantaged are lower. Reducing GST would encourage more people to opt for health coverage, improving insurance penetration and financial protection.

⦁More Affordable Senior Citizen Policies- 
Health insurance premiums rise with age, making the coverage quite expensive for senior citizens. Relief measures for GST would increase the affordability of senior citizen health insurance plans, giving greater financial security to an ageing population.

But for those who want the best health insurance options, GST relief could make premium health plans even more affordable and thus easier to access capacious insurance without having to incur an arm and a leg.

What Types of Health Insurance Will GST Relief Impact Understanding?

How specific types of health insurance will be impacted by GST relief on health insurance could be very different. Here’s a look at how it might benefit specific categories:

⦁Family Health Insurance –

This one can be less costly than individual plans as this covers the entire family under a single policy. If GST were reduced on family health insurance plans, the total premium cost would go down immediately, making it easier for families to budget and for everyone in the family to be able to continue being healthy.

⦁Individual health insurance-  

Premiums differ based on age, medical history and type of coverage chosen. The benefit of GST relief would go to young buyers who want to have access to affordable long-term coverage early on in the adoption of health insurance.

⦁Senior Citizen Health Insurance -

Seniors already pay more in premiums because of higher risk factors. A decrease in GST would push these plans significantly down in price and would remove such financial strain off seniors themselves and their families.

⦁Critical Illness Insurance -  

Critical illness policies cover severe health conditions like cancer, heart attack and strokes, where the treatment cost is normally quite high. With GST relief, these policies could become more affordable, allowing policyholders to access the best health insurance for critical illnesses without the added burden of high GST charges.

Tax Benefits on Health Insurance Premiums

Part of GST relief is also tax deductible under section 80 D of the Income Tax Act is the health insurance premiums. Here’s a brief overview of these benefits:

⦁Individuals can get a deduction of up to ₹25,000 per annum on health insurance premiums, and this limit rises to ₹50,000 in the case of senior citizens.

⦁Additional Deduction – Any person who pays a separate policy for the parents who are senior citizens is entitled to an additional deduction of ₹50,000, a sum not exceeding ₹75,000.

GST Relief: Challenges and Concerns

While GST relief on health insurance premiums is highly beneficial, some challenges need to be considered:

⦁The Government’s Revenue Implications - Reducing or even removing GST on health insurance reduces revenue. That means GST revenue — which is vital to government healthcare programs and other sectors — could be affected.

⦁Implementation Complexity - Changing GST Rates requires approval of the GST Council; as it involves discussions and agreements among states. Delaying this process can further take GST relief on health insurance.

⦁Revenue Impact on Other Sectors - Generally health insurance will be granted GST relief, which in turn will attract similar requests from other sectors threatening to add to more revenue impacts and administrative burdens.

However, even in the face of these challenges, the long-term benefits of health insurance GST relief will be outweighed by the long-term benefits of promoting widespread health sector access and offsetting the financial burden assumed by individuals and families.

Conclusion

Relief of GST on health insurance premiums could be a transformative change that would help to make healthcare lower and more available to all. By taking some of the financial burden off individuals and families, GST relief would allow more people to get the best health insurance coverage they need without prohibitive costs. While the GST relief is difficult to implement, the long-term advantages of wider health insurance coverage and better healthcare access are essential going forward. With healthcare costs on the rise, GST relief on health insurance would be a great step towards a healthier, more financially stronger India.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.