A few days ago, one of our customers wanted to purchase a health insurance policy for his ageing parents. Considering the financially responsible individual that he was, he compared different policies for seniors before booking a call with us and calculated the approximate premiums. However, when he saw the final cost, he was taken aback after the price was almost 1/5th higher than his estimate. An 18% GST on the premium made it significantly more expensive.
We all know health insurance is an essential safeguard against rising medical costs. So, why is health insurance – something so essential – taxed at a higher GST rate?
In this article, we’ll break down the current GST rate on health insurance in 2025, its implications for policyholders, potential changes, and how you can help mitigate the financial impact.
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Current GST Rate on Health Insurance in 2025
As of early 2025, health insurance premiums in India continue to attract 18% GST, the same rate that has been in effect since the introduction of GST in India in July 2017. This tax applies to all types of health insurance policies – individual health insurance plans, family floater policies, senior citizen health insurance, and critical illness plans.
This tax burden makes health insurance policies more expensive, thereby increasing the cost for people who want to purchase a policy — especially for those from lower-income groups who may already find health insurance premiums costly.
Impact of GST on Health Insurance Premiums & Affordability
While 18% GST on health insurance may not seem large initially, it has a significant impact over time, especially for plans with high premiums. Here’s how it affects you as the policyholder:
- Higher Overall Premiums
GST increases the total cost of insurance, making it harder for middle-class and low-income families to afford adequate coverage. While the government does provide health insurance coverage for low-to-middle-income families, it may not be as comprehensive as a good health insurance plan from a private insurer. - Increased Burden on Senior Citizens
Senior citizens already pay higher premiums due to age-related risks. With 18% GST, the additional cost further strains their finances. - Comparison with Other Essential Financial Services
While GST on life insurance policies is applied at a lower rate (1.8% to 18%) depending on the type of plan, health insurance is taxed at a flat 18%. This raises concerns about whether healthcare should be taxed at such a high rate, given that it is essential.
Expected Changes to GST on Health Insurance
This is exactly why the government is deliberating on reducing the GST rate for health insurance. Over the years, insurers, agents and policyholders have actively appealed to the government to reduce GST, emphasising that a lower tax rate would make health insurance more accessible to more people.
The GST council had multiple discussions regarding this matter last year, and in late 2024, they announced that GST on premiums for a cover amount of up to ₹5 lakh will be exempted for senior citizens. However, whether or not there would be a rate cut for the general population has been deferred.
Currently, there have been discussions on the internet around lowering GST on health insurance to either 12%, 5%, or completely exempting tax. Here’s how each of these might pan out:
- GST Reduction to 12% – This would provide some relief to policyholders without drastically impacting government revenue. Insurers would also be eligible to claim Input Tax Credit (ITC).
- GST Reduction to 5% – This would significantly lower premiums, making health insurance more affordable for middle-class families. However, Insurers would not be eligible to claim Input Tax Credit.
- Complete GST Exemption – While this would entirely remove the tax burden on policyholders, it could create complications for insurers, as they might lose input tax credit (ITC) benefits.
If approved, any revision in GST rates will likely be introduced in one of the upcoming GST Council meetings. However, changes may take time, depending on government priorities.
GST Input Tax Credit (ITC) and Its Impact on Insurers
One lesser-known aspect of GST is the Input Tax Credit (ITC). This allows companies to offset their tax receipts against tax payments. Currently, a company is eligible for input tax credit only if they charge 12% or above GST.
So, if GST on health insurance is reduced to 5% or completely removed, insurers might lose this credit, leading to higher tax payments. This could potentially mean insurers can increase costs for customers, offsetting the benefits of a GST exemption.
Tax Benefits under section 80D: How You Can Save Money
While GST increases the cost of health insurance, tax benefits under Section 80D of the Income Tax Act can help you offset some of the expenses. Here’s how:
- Individuals can claim up to ₹25,000 for health insurance premiums paid for themselves, their spouse, and children.
- If you purchase health insurance for your parents, who are senior citizens, you can claim an additional ₹50,000.
- If you and your parents are over 60, you can claim up to ₹1,00,000.
Here’s a more detailed explanation of Section 80D of the Income Tax Act.
Comparison of GST on Health Insurance in India vs Other Countries
Compared to tax rates on health insurance premiums in other countries, the GST rate in India remains relatively high. Here’s a quick comparison with other G20 nations:
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Conclusion
Reducing the GST on health insurance will encourage more people to buy health insurance policies. While the government’s decision on GST changes remains uncertain, you, as a policyholder, should maximise tax benefits and choose an affordable but comprehensive health insurance policy to minimise your financial risk. If you need help choosing the right policy, feel free to chat with us on WhatsApp or book a call at a convenient time.
