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Before moving on to understanding the impact of GST on health insurance, let us know more about GST.
What is the Goods and Services Tax?
Goods and Services Tax, or GST, is an indirect tax that is charged for the consumption of various goods and services such as household goods, textiles, food, electronic items, transportation services, real estate , insurance, etc. GST can be divided into two parts, State GST (SGCT) and Central GST (CGST). This is done to facilitate the distribution of revenue between the central government and the state governments. The GST is levied in five bands: 0%, 5%, 12%, 18% and 28%.
GST and health insurance
Prior to the implementation of the GST, the service tax levied on health insurance products was 15%. These were a basic services tax of 14%, a Swachh Bharat Cess of 0.5% and a Krishi Kalyan Cess of 0.5%. After the introduction of the GST, the tax levied on health insurance is 18%. This led to an increase in the overall insurance premium on health insurance. Let’s take an example to better understand:
A health insurance policy with a coverage of ₹5,000 and a premium of ₹10,000 will be affected as follows:
Before the GST, the service tax applicable to health insurance was 15% of the premium. So the total premium for the above policy would be
(15% of 10,000) + ₹10,000 = ₹11,500
After the introduction of the GST, the applicable service tax is 18%. Therefore, the new premium will be
(18% of 10,000) + ₹10,000 = ₹11,800
Advantage of the GST on Health insurance
The introduction of GST on health insurance has led insurers to offer various health insurance plans at affordable premiums. This has been a great relief for policy buyers as medical costs are steadily rising. Today, with affordable premiums, people are buying health insurance plans more than ever.
Disadvantage of GST on Health insurance
As seen above, the increase in the service tax from 15% to 18% led to an increase in the premiums payable for health insurance schemes after the introduction of the GST scheme. In addition, people who have health insurance plans cannot benefit from the input tax credit.
Tax advantages of health insurance
You can benefit from the tax advantages of health insurance. The GST collected on health insurance plans is an indirect tax. This amount may be subject to a tax deduction. For example, a person buys a ₹10 lakh health insurance plan with a premium of ₹17,000. Total premium after adding 18% GST becomes ₹20,060. This amount may be claimed to obtain a tax deduction under Section 80D.
Summary
With changing lifestyles and rising medical costs, it is imperative to purchase health insurance for yourself. It is extremely important to understand that by paying the health insurance premium along with the GST charges, you are getting financial coverage for yourself that will cover any medical expenses you may incur in the future. And with the increasing competition in the market, you can now get affordable health insurance plans to financially protect you and your family in the event of a medical emergency.
