A Simple Guide to GST on Health Insurance Policies

India implemented the Goods and Services Tax (GST) in July 2017 with the aim of streamlining the nation’s complicated tax system. It replaced various indirect taxes with one unified system. This change simplifies the tax process for businesses and individuals. Health insurance is treated as a service and also comes under the GST framework. As a result, GST is added to insurance premiums, which slightly increases the cost for policyholders. The inclusion of GST in health insurance affects the overall premium amount. In this blog, you will learn how GST on Health Insurance impacts the overall cost planning of people and more.

What is GST on Health Insurance?

In India, most health insurance premiums—including individual, family floater, and critical illness plans—are subject to an 18% GST under HSN code 997133. However, certain government-run health insurance schemes, such as the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme, are exempt from GST. These exemptions are designed to make healthcare accessible to the physically challenged or economically weaker sections of society.

GST Rate on Health Insurance with HSN Codes

The Harmonized System of Nomenclature (HSN) helps to classify goods and services under the GST framework.

Listed Below are the GST rates on Health Insurance with HSN Codes:

Types of GST on Health Insurance

There are the following types of GST on Health Insurance:

1. CGST or Central GST Implementations

Central GST (CGST) on health insurance is charged during the intrastate sale of a policy. This means that when a policy is bought and sold within the same state. It is combined with State GST (SGST), and both are collected separately by the central and state governments. The CGST rate is 9%, and the SGST rate is also 9% for health insurance policies. So, the total rate is 18% for Intrastate GST. This helps share tax revenue between central and state authorities.

2. SGST or State GST and Union Territory GST or UTGST

State GST (SGST) or Union Territory GST (UTGST) is applied when a health insurance policy is bought and sold within the same state or union territory, which is called an intrastate transaction. It is charged together with Central GST (CGST) and forms a part of the total GST. While the CGST is collected by the central government, SGST or UTGST is collected by the respective state or union territory. The applicable SGST or UTGST rate on health insurance is 9% along with an additional 9% CGST.

3. IGST or Integrated GST

Integrated GST (IGST) on health insurance is charged when a policy is sold across different states or union territories, which is known as an interstate sale. For example, if an insurer in one state sells a policy to someone living in another state, IGST applies. This tax combines the Central GST (CGST) and State or Union Territory GST (SGST/UTGST) rates into a single tax of 18%. The central government collects this tax and then shares a portion of it with the state where the policyholder lives. This system ensures fair tax distribution between states.

When IGST is Applicable on Health Insurance:

1. Interstate supply of insurance services
   • Example: If a health insurance company registered in Delhi sells a policy to a customer in Maharashtra, IGST is charged.
2. Import of insurance services
   • If an Indian resident buys health insurance from a foreign insurance company, IGST is applicable under the reverse charge mechanism (RCM).
3. Online services
   • If insurance services are provided online across state borders, IGST may be applied.

When IGST is NOT applicable:

Intra-state supply (same state): CGST + SGST are charged instead of IGST. Example: Both the insurer and the insured are in Karnataka → CGST + SGST apply.

Impact of GST on Health Insurance

Before GST was implemented, health insurance premiums were taxed under Service Tax at a total rate of 15%. This included a 14% Basic Service Tax, 0.5% for Swachh Bharat Cess (SBC), and 0.5% for Krishi Kalyan Cess (KKC). This older tax system applied to all insurance policies. This lowers the overall tax burden on policyholders compared to current rates.

After the introduction of GST, the tax on insurance premiums increased to 18%, replacing the earlier Service Tax system. This increase has made premiums more expensive. This makes health insurance less affordable for many people. Although the insurance sector has repeatedly requested a reduction of the GST rate to 5%, the current rate remains unchanged.

Impact of GST on Health Insurance Policy Renewal

Health insurance policies bought before GST was introduced are not affected by the 18% GST until renewal. There is no need to adjust the earlier service tax paid. However, once the policy is renewed, policyholders are required to pay the applicable GST on the renewed premium amount, as per the current tax regulations.

Positive Effects of GST on Health Insurance Premiums

GST has eliminated the cascading effect of taxes. This means there is no longer a tax on top of another tax. This change has positively impacted the health insurance sector. Insurers can now claim Input Tax Credit (ITC) on the GST they pay while making purchases. They can use this credit to offset GST collected on their services, which reduces the overall tax burden.

How to Calculate GST in Health Insurance?

Calculating GST on health insurance premiums is applied to the premium amount after deducting any applicable no-claim bonus. The final tax amount depends on the reduced premium value.  

No-claim bonus is a discount given for not making any claims, where no GST is charged on it. This means policyholders pay tax only on the reduced premium. It helps lower their overall tax burden and makes insurance more affordable.

Is it Possible to Claim Input Tax Credit on Employee Health Insurance Premiums?

Section 17(5)(b) of the Central GST Act specifies that businesses cannot claim input tax credit (ITC) on the GST paid for life and health insurance premiums. This restriction also applies to group insurance policies taken out for employees. However, a registered business can claim ITC if the insurance services are used to provide taxable goods or services of a similar nature. Businesses can claim Input Tax Credit (ITC) if insurance is part of a taxable composite or mixed supply. This ensures that ITC is only claimed when insurance expenses relate directly to taxable business activities that promote accurate tax compliance.

55th GST Council Meeting on Health Insurance GST

On December 21, 2024, the GST Council's 55th session deferred the proposal to reduce GST on health insurance. Instead, the Council assigned the issue to a Group of Ministers (GoM) and asked them to collect detailed information and prepare a comprehensive report for further consideration.

The Group of Ministers (GoM) put forward several key recommendations related to GST on health insurance, including:

• Health insurance premiums up to Rs. 5 lakh may be exempt from GST, but only for individuals who are not senior citizens.
• The government may consider removing GST on premiums for term life insurance and health insurance plans for senior citizens.
• Lowering the GST on health insurance premiums for non-senior citizens from 18% to 5% could make these plans more affordable.

Thus, the council decided that further discussions are required to make a final decision on these changes to the GST structure for health insurance. However, these are not at all implemented and the schemes are not live.

Conclusion

While GST has streamlined India’s tax system, the high tax rate on health insurance remains a concern for affordability and access. In the 55th GST Council meeting, a review of GST rates on health insurance was emphasized, with suggestions like offering relief for senior citizens and policies below ?5 lakh. Though no final decision has been made, ongoing discussions aim to balance affordability with revenue needs. For any GST registration support, contact Online Legal India.