The introduction of the Goods and Services Tax (GST) in the year 2017 was a remarkable decision by the Government of India. It has removed the cascading effects of multiple taxes that existed earlier. GST is levied across the country on several goods and services, including health insurance.
The GST on health insurance is charged at a rate of 18%. Earlier, the rate of service tax on insurance was 15%, which included a Basic Service Tax of 14%, Swachh Bharat Cess of 0.5% and Krishi Kalyan Cess of 0.5%.
Before we know the impact of GST on insurance premium and potential policy buyers, let us understand about GST.
What is GST?
GST is a single indirect tax applied at the point of consumption of various goods such as household items, food, textile, electronic products, etc. and services like transportation, real estate, insurance, etc. There are four types of GST such as:
- Central GST (CGST): A part of the GST payable per transaction goes to the Central Government
- State GST (SGST): The part that goes to the state Government, when a transaction takes place within a particular state.
- Integrated GST (IGST): The GST levied on inter-state supplies where transactions take place between two states or union territories (UTs), one state or UT, and a foreign territory.
- Union Territory GST (UGST): The GST levied by a Union Territory in India for transactions occuring within the Union Territory.
GST is applied on various goods and services under five slabs: 0%, 5%, 12%, 18%, and 28%. Medical insurance products are charged at a rate of 18%. But do you know why 18% GST on health insurance is levied?
Impact of GST on Health Insurance
All insurance schemes, including best health insurance come under the ambit of the Goods and Services Tax (GST). This means the premium you pay towards your medical insurance policy would attract an 18% GST, as specified above.
After the implementation of GST on medical insurance premium, there has been a hike in insurance cost for buyers. From the earlier 15% service tax, they will now have to pay an additional amount based on the current rate.
The premium you pay towards your health plan offers you comprehensive coverage for various medical expenses, which is not just limited to hospitalisation but goes beyond that. That is, expenses incurred during the policy period for pre-and-post hospitalisation, daycare treatments, diagnostic tests, OPD costs as well as maternity care are also covered in such plans.
Health Insurance GST Rate
The GST on health insurance products is applicable to the entire premium amount. This is not so in the case of life insurance, where GST for health insurance is applicable only on the risk coverage component of the premium and not on the investment component, which provides maturity benefits.
Example: Let us suppose you opted for a health insurance policy of coverage amount of Rs 5 Lakh, and the premium cost is Rs 11,000 per year.
Now, let us see the cost impact:
Before GST:
The tax applicable was 15%. That is, the premium to be paid would have been:
(15% GST on 11,000) + 11,000 = 12,650
After GST:
The current tax applicable is 18%. That is, the premium to be paid is calculated as below:
(18% GST on 11,000) + 11,000 = 12,980
As a buyer, you will have to spend Rs 12,980 on your medical insurance premium.
