GST on health and life insurance: How much do tax rates impact your premiums? check here

Several political leaders are demanding the withdrawal of the Goods and Services Tax (GST) imposed on life and health insurance policies. Ministers and politicians such as Congress leader Rahul Gandhi, West Bengal Chief Minister Mamata Banerjee, and Union Minister Nitin Gadkari, have voiced their concerns over high GST rates on insurance as it is a major impediment to India’s vision of ‘Insurance for all by 2047’.

GST collection on insurance premiums

Currently, all types of health and life insurance policies are subject to an 18 per cent GST. Before the implementation of GST in 2017, insurance premiums garnered a 15 per cent service tax, which included Basic Service Tax, Swachh Bharat cess, etc. 

The transition from a service tax to an 18 per cent GST increased premium amounts. Over the past few years, there has been a significant increase in GST collected on insurance premiums and renewals. According to the data presented in the Lok Sabha in August 2024, GST collected on insurance premiums over the past three financial years has increased from ₹5,354.28 crore in FY21-22 to ₹8,262.94 crore in FY23-24. Similarly, GST collected from health reinsurance premiums has increased from ₹825.95 crore to ₹1,484.36 crore. 

How much GST do you pay on health insurance premiums?

“GST currently applicable on the insurance premium is 18 per cent. The insurance companies determine the gross premiums that are applicable based on the expected cost of claims and associated expenses. These premiums are loaded for the applicable GST,” explained Parthanil Ghosh, Director and Chief Business Officer of HDFC ERGO General Insurance. 

GST applied to health insurance premiums impacts their overall cost. Currently, health insurance policies are subject to 18 per cent GST, which is applied to the premium amount, said Ajay Shah, Head of Distribution, Care Health Insurance.

To understand the impact of GST rate on insurance premiums, people can consider the following example:

Suppose you have a health insurance policy with a base premium of ₹15,000. The GST rate applied to health insurance premiums is 18 per cent.

To calculate the total premium, including GST:

1. Calculate the GST Amount:

– GST = Base Premium × GST Rate

– GST = ₹15,000 × 0.18

2. Calculate the Total Premium:

– Total Premium = Base Premium + GST

– Total Premium = ₹15,000 + ₹2,700

– Total Premium = ₹17,700

So, the GST adds ₹2,700 to the base premium of ₹15,000, resulting in a total premium of ₹17,700.

“This additional cost can be a decisive factor, potentially leading to two outcomes: either the customer is willing to choose to go for a lower coverage to fit the pocket that will lead to underinsured or inadequate coverage or deterring customers from purchasing the policy, keeping them and their families vulnerable for future health emergencies,” said Rakesh Jain, CEO, Reliance General Insurance.

“Policyholders using the old income tax regime can avail tax deductions on the insurance premiums up to a certain limit under Section 80D and 80C of the Income Tax Act,” said Ghosh.

Will the reduction of GST rates on insurance slash premiums?

“If GST on insurance products were reduced or eliminated, insurers would likely pass the benefits on to customers. The most immediate effect would be a reduction in premiums, making insurance more affordable,” said Shah.

Some issues continue to bother the insurance industry players and deter them from reducing premiums. “Insurance companies are currently unable to claim ITC on the hospital charges, and thus, the same is passed on to the customers as premiums. Thus, if an insurance company can claim ITC on all the GST services procured by the company, this can help reduce the premiums further,” opined Ghosh.