The Goods and Services Tax (GST) has been a significant reform in India’s taxation system since its implementation on 1 July 2017. One of the sectors impacted by GST is the health insurance industry. Policyholders and insurers need to know the rules, HSN codes, and GST rates for health insurance. In this article, we will delve into the details of GST on health insurance and its implications.
Table of Contents
GST Rate on Health Insurance
Under the current GST regime, health insurance premiums attract a tax rate of 18% under the HSN code 997133. This rate is applicable across all types of health insurance policies, including individual plans, family floater plans, senior citizen plans, and critical illness plans. However, there are certain exemptions for government-sponsored health insurance schemes. For instance, the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme, which cater to economically weaker sections and individuals with disabilities, respectively, are exempt from GST. These exemptions ensure affordable health coverage is accessible to those who need it the most.
HSN Code for Health Insurance Services
The Harmonized System of Nomenclature (HSN) is used to classify goods and services under the GST framework. The HSN code for health insurance services is 9971, which also includes other insurance services such as life insurance and reinsurance. The correct classification of health insurance under HSN 9971 is crucial for insurers to ensure accurate billing and compliance with GST regulations.
-
Significance of HSN Code in billing and compliance:
-
Standardises tax applicability
-
Enables insurers and policyholders to account for GST appropriately
-
Helps insurers file GST returns accurately
-
Different Types of GST on Health Insurance
Under the GST regime, there are three types of taxes applicable to health insurance premiums:
1. Central Goods and Services Tax (CGST)
CGST is levied by the central government on intrastate transactions. In the case of health insurance, CGST is charged at a rate of 9% on the premium amount.
2. State Goods and Services Tax (SGST)
SGST is levied by the state government on intrastate transactions. Like CGST, SGST is also charged at a rate of 9% on health insurance premiums.
3. Integrated Goods and Services Tax (IGST)
IGST is applicable on interstate transactions and is levied by the central government. For health insurance policies, IGST is charged at a rate of 18%, which is the sum of CGST and SGST rates.
To illustrate, let’s consider an example. If you purchase a health insurance policy with an annual premium of ₹10,000 within your state, you will be charged CGST and SGST at 9% each, amounting to a total GST of ₹1,800. However, if you buy the same policy from an insurer located in another state, you will be charged IGST at 18%, which would also amount to ₹1,800.
How GST Affects Health Insurance?
The implementation of GST has had a direct impact on the health insurance sector. The increased tax rate from 15% to 18% has made health insurance premiums more expensive for policyholders. This additional financial burden can be particularly challenging for those who are already struggling with rising healthcare costs.
The higher GST on health insurance premiums has increased costs, making insurance less affordable. Many policyholders face financial strain, especially those from lower-income groups. The insurance industry is advocating for reducing GST to make premiums more accessible. A lower GST would promote wider insurance adoption and improve healthcare access.
GST’s Impact on Health Insurance Policy Renewals
The introduction of GST has also affected health insurance policy renewals. Policyholders who had paid premiums in advance for multi-year health insurance policies before July 1, 2017, are not liable to pay additional GST on those premiums. The GST is applicable only on premiums collected after the implementation date.
In cases where premiums are paid in installments, GST is levied only on installments payable after July 1, 2017, and not on the entire premium amount. Insurers had to rework their policy premiums and issue new premium charts factoring in the revised 18% GST post-implementation.
How to Calculate GST on Health Insurance Premiums?
Calculating GST on health insurance premiums is a straightforward process. The tax is calculated on the premium amount of the health insurance policy after deducting any applicable no-claim bonus.
Here’s a simple example to illustrate the calculation:
Let’s say your annual health insurance premium is ₹20,000, and you are eligible for a no-claim bonus of ₹2,000. The premium amount considered for GST calculation would be ₹18,000 (₹20,000 – ₹2,000).
Particulars |
Amount |
---|---|
Annual Premium |
₹20,000 |
No-Claim Bonus |
₹2,000 |
Premium before GST |
₹18,000 |
GST @ 18% |
₹3,240 |
Total Premium Payable |
₹21,240 |
As you can see, the GST amount of ₹3,240 is added to the premium, resulting in a total payable amount of ₹21,240.
GST Exemptions or Special Cases Related to Health Insurance
While most health insurance policies are subject to the 18% GST rate for health insurance, there are certain exemptions and special cases to consider:
1. Government-sponsored health insurance schemes
As mentioned earlier, schemes like the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme are exempt from GST, making them more affordable for the beneficiaries.
2. Health insurance policies offered by employers
If an employer provides health insurance coverage to their employees as a part of their compensation package, the GST paid on the premiums can be claimed as an input tax credit by the employer. This helps reduce the overall cost of providing employee benefits.
3. Health insurance for senior citizens
While there is no specific GST exemption for senior citizen health insurance policies, many insurers offer special plans tailored to the needs of older individuals. These plans often come with higher coverage limits, additional benefits, and more affordable premiums, helping senior citizens manage the cost of their healthcare.
It is important to note that these exemptions apply only to government schemes, and all health insurance policies offered by private insurers are taxable under GST.
Latest Updates and Developments in GST on Health Insurance
As of January 27, 2025, the Goods and Services Tax (GST) on health insurance premiums remains at 18%. Recent discussions have focused on the potential reduction or exemption of GST on health and life insurance premiums to make them more affordable. However, industry experts caution that a full GST exemption could lead to higher premiums due to the loss of input tax credit benefits.
In the 55th GST Council meeting held in December 2024, the decision on reducing GST rates for health and life insurance premiums was deferred, with further discussions planned for future meetings.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed extending GST exemptions to micro-insurance policies, senior citizen health insurance, and term life insurance policies up to a certain limit to benefit vulnerable sections of society.
It’s important to stay updated on these developments, as any changes in GST rates or exemptions can significantly impact the cost of health insurance premiums for policyholders.
Frequently Asked Questions (FAQs)
1. Why is 18% GST on insurance?
The GST Council decided the 18% GST rate on health insurance to maintain a balance between generating revenue for the government and ensuring that health insurance remains accessible to the public. The higher tax rate also helps offset the revenue loss from the exemption of healthcare services from GST.
2. Does GST apply to all types of health insurance policies?
Yes, the 18% GST for health insurance applies to all health insurance policies, including individual, family floater, senior citizen, and top-up plans. However, certain government-sponsored schemes like the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme are exempt from GST.
3. Are there any exemptions from GST on health insurance?
Apart from the government-sponsored schemes mentioned above, there are no specific GST exemptions for health insurance policies. However, businesses and professionals can claim the GST paid on health insurance premiums as an input tax credit if the policy is purchased in the company’s name.
4. Has the GST rate on health insurance changed recently?
No, the GST Rates on health insurance have remained unchanged at 18% since the implementation of GST in July 2017. However, there have been some updates and clarifications regarding exemptions and applicability on certain aspects like preventive health check-ups and rider premiums.
5. Can GST be claimed on health insurance?
Yes, businesses and professionals can claim the GST paid on health insurance premiums as an input tax credit if the policy is purchased in the company’s name. This provision helps reduce the overall cost of providing employee benefits and managing business expenses.
6. Is there any GST on Health Insurance Claims?
No, there is no GST applicable on health insurance claims. The tax is levied only on the premiums paid for the policy and not on the claim amount received from the insurer.