How GST Impacts Health Insurance Premiums in 2024: What Policyholders Should Know

As health insurance becomes increasingly essential, understanding the factors influencing its cost is crucial. In 2024, one such factor is the Goods and Services Tax (GST), which directly impacts the premium policyholders pay. The application of GST health insurance premiums can affect affordability, particularly for individuals and families seeking extensive coverage. Here’s a breakdown of how GST influences health insurance premiums and what policyholders should keep in mind, especially regarding GST returns.

The current GST rate on health insurance premiums

Currently, GST is levied at a rate of 18% on health insurance premiums in India. This tax rate significantly increases the total premium cost, making health insurance more expensive. For example, if the base premium for a health insurance policy is Rs. 10,000, an 18% GST would add an additional Rs. 1,800, bringing the total cost to Rs. 11,800.

This increase in cost due to GST is especially relevant for senior citizens, individuals with multiple policies, and those who need higher coverage for critical illnesses. While GST contributes to the government’s revenue, many have called for a reduction in the tax rate on essential services like health insurance to improve affordability.

Why is GST applied to health insurance premiums?

The rationale behind imposing GST health insurance lies in its classification as a financial service. The government applies GST on various goods and services to create a standardised tax system. However, unlike some essential services exempt from GST, health insurance is still subject to the full 18% rate. This decision has led to debates over whether health insurance should be considered a necessity and thus be eligible for tax relief or a reduced GST rate.

How GST affects policyholders

For policyholders, the 18% GST rate on health insurance premiums has several implications:

1. Higher overall costs: The additional tax increases the annual premium cost, which may deter some individuals from purchasing adequate coverage.
2. Impact on renewal premiums: Policyholders renewing their health insurance policies face higher premiums due to GST, potentially leading some to opt for lower coverage or skip renewal.
3. Influence on family and senior citizen plans: Family health insurance plans and policies for senior citizens typically have higher base premiums, meaning the GST amount adds a substantial cost.

This impact is felt most acutely by middle-income families and senior citizens, who may already find health insurance premiums challenging to afford. As a result, the high GST rate on health insurance has sparked conversations around possible tax relief or reductions to make essential healthcare more accessible.

Can policyholders claim GST returns on health insurance?

One common question among policyholders is whether they can claim GST returns on their health insurance premiums. Unfortunately, for individual policyholders, GST paid on health insurance premiums is not eligible for input tax credit or refunds. However, businesses that provide health insurance as a part of their employee benefits may claim input tax credit on GST, as long as the policy is directly related to business expenses.

For individual policyholders, there is currently no provision to offset GST health insurance against any tax liability. This limitation adds to the financial burden of health insurance, as the GST component represents an extra expense that cannot be recovered.

Calls for GST rate reduction on health insurance

Given the importance of health insurance in providing financial protection, there have been increasing calls for a reduction in the GST rate applied to premiums. Many industry experts and stakeholders have argued that health insurance should be treated as an essential service and taxed at a lower rate or even exempted from GST altogether. Proposals have included reducing the GST rate from 18% to 5% or zero-rating health insurance premiums to make them more affordable.

In recent years, some discussions have taken place in government circles regarding a possible reduction in GST health insurance. Although no changes have been implemented yet, ongoing conversations indicate that a reduction might be considered in the future to support better healthcare access for more Indians.

How GST reduction could benefit policyholders

Reducing GST health insurance premiums could bring several benefits:

1. Increased affordability: A lower GST rate would make health insurance more affordable for a larger segment of the population, encouraging more people to buy coverage.
2. Higher adoption of health insurance: With reduced costs, individuals who previously avoided health insurance due to high premiums might be encouraged to invest in a policy.
3. Enhanced coverage options: Policyholders might opt for more comprehensive coverage if the premium costs decrease due to reduced GST. This improvement could lead to better financial protection for families.

Key considerations for policyholders in 2024

As GST continues to impact health insurance costs, policyholders should consider the following points:

• Compare premiums across insurers: Different insurers offer various plans, and some policies may offer better value despite GST. Comparing plans can help find a policy that meets your needs at a reasonable cost.
• Opt for long-term policies: Some insurers offer discounts on long-term health insurance policies, which can help offset the GST impact. Consider purchasing a policy for two or three years instead of annual renewal to save on costs.
• Check for tax benefits: While GST health insurance cannot be claimed as a return, health insurance premiums are eligible for tax deductions under Section 80D of the Income Tax Act. This deduction can reduce the overall tax burden, providing some financial relief.

Conclusion

The application of GST health insurance premiums in 2024 continues to influence the overall cost of health coverage, making it a critical factor for policyholders. With GST set at 18%, health insurance premiums have become a significant expense, particularly for families and senior citizens. Although discussions around reducing GST health insurance have gained momentum, no changes have been confirmed yet.

For policyholders, understanding how GST impacts premiums and what GST returns are can help in making informed decisions. Comparing plans, considering long-term policies, and leveraging tax deductions are some strategies to manage costs effectively. While GST remains a part of health insurance expenses, being aware of its implications can lead to better financial planning and enable access to necessary healthcare coverage.