What is GST on Health Insurance Premium – Calculation, Benefits and Taxation
The Government of India introduced Goods and Service Tax (GST) in 2017. It replaced as many as 17 different federal and state taxes with a uniform and single tax structure. GST on health insurance premiums is currently applicable at the rate of 18%. Previously, insurance policies had a 15% service tax applicable, including 14% basic service tax, 0.5% Krishi Kalyan tax and 0.5% Swachh Bharat tax.
This article discusses GST on health insurance, how it is calculated, its impact and benefits and more. Read on!
What is GST on Health Insurance?
Every insurance policy, including medical insurance, falls under the purview of Goods and Service Tax (GST). Thus, an 18% GST on Mediclaim premium has to be paid, as mentioned earlier.
The imposition of GST on insurance premiums has increased the price for the purchasers of health insurance policies. From the service tax of 15% earlier, they now have to give an extra sum based on the present rate.
Premium paid towards the health policy offers a wide range of medical expenses that go beyond hospitalisation costs. The plan covers maternity care, OPD charges, diagnostic tests, day-care treatments, pre-hospitalisation charges, etc.
Impact of GST on Health Insurance Policies
The positive impact of GST on Mediclaim policies is that the rise of tax rates has encouraged more competition among insurers. They are now providing policies at lower costs so as to make them affordable for people. Even the buying and claiming process has been made more simple. The quality of services has also been improved after the implementation of GST.
On the other hand, the new tax scheme has increased the premium amount of the policies. Existing policyholders who wish to renew their Mediclaim have no choice but to accept costly premium amounts. Additionally, individuals and group policyholders will not be getting any tax advantage.
Also Read: What Is Input Tax Credit (ITC) In GST? Eligibility And Documents Required To Claim ITC
How is GST on Health Insurance Premium Calculated?
Goods and service tax on medical insurance is levied on the premium paid. However, it is different for life insurance. Goods and Service tax on life insurance is charged on the risk coverage part of the premium instead of the investment part.
Suppose you have bought a medical insurance policy with a sum insured of Rs.6 lakh. The premium amount is Rs.12,000 per year.
Now, let us watch how the cost has increased:
1. Before Goods and Service Tax
The tax was 15%. The Premium amount would be:
(15% GST on 12,000) + 12,000 = 13,800
2. After Goods and Service Tax
The tax is 18%. The Premium amount is:
(18% GST on 12,000) + 12,000 = 14,160
So, you will be paying Rs. 360 more than the previous insurance premium.
How is GST on Health Insurance Beneficial for Insurance Buyers?
Although implementing the Goods and Service Tax has raised the prices of insurance policies, it has created high competition among the insurance companies. To satisfy purchasers, insurers have tried to reduce the prices of their policies by cutting costs on various policy-related expenses.
There is an improvement in the services provided by insurance companies in the context of filing claims and buying policies. This is an advantage for buyers who do not have enough time to consider other factors related to insurance. A consumer should understand that price is not the only factor he/she should consider while purchasing a policy.
A primary aspect of any insurance is the protection it guarantees to purchasers and services provided by the insurer in terms of claims and policy tenures. Hence, with the introduction of GST on insurance premiums, the consumer service experience is enhanced.
Also Read: GST Rates In India: An Extensive Repository
What are the Limitations of GST on Health Insurance
The applicable health insurance GST rate has imposed additional charges on buyers. People who have bought medical policies cannot make use of input tax credit. Also, companies having group policies for employees cannot take advantage of the input tax credit.
Eligibility of Tax Deduction on GST on Health Insurance
According to Section 80D of the Income Tax Act, policy premiums for medical insurance are eligible for a tax deduction. This is also applicable to Mediclaim policies for critical illnesses and top-up health insurance plans. The taxpayer/individual can claim the deduction on insurance availed for himself/herself, spouse, dependent children and parents.
An individual can avail of the deduction of tax under section 80D for payments discussed below:
- The medical insurance premium is paid for the Mediclaim policy.
- Medical expenditure is incurred by any person aged 60 or more who is not covered under any health insurance scheme.
- Amount spent for preventative health check-ups.
- Contribution to any Central Government health scheme or any other scheme that has been notified by the government.
Final Word
Medical Insurance provides financial aid to a family and takes care of the well-being of the consumers. GST on health insurance is applied to the total amount of premium. The buyer needs to realise that premium, with the GST rate, facilitates a huge medical expenditure in the long run.
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FAQs
Ans: No, GST on health insurance premiums is not refundable for a policyholder. It is only refundable when an individual is selling items at a lower tax rate and paying a greater tax rate.
Ans: Yes, the GST rate on health insurance premiums is applicable for Jammu and Kashmir. A person has to pay GST on medical insurance all across India.
Ans: Yes, GST rates on medical insurance premiums are fixed at 18% all over India, including Union Territories.
Ans: The Goods and Service Tax is applicable in the case of all services. Therefore, one has to pay the 18% tax on all policies of health insurance.
Ans: Yes, you can see the Goods and Service Tax charged along with your health insurance premiums.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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