Centre expected to go for 12% GST on Health Insurance

Currently, individuals are subject to an 18% GST rate when purchasing health insurance, which represents an increase from the previous Service Tax of 15%
Centre - GST - Health Insurance - taxscan

The central government may propose a reduction in the GST tax rate from 18% to 12% for health insurance premiums up to Rs 30,000, aiming to enhance affordability and attractiveness. A premium of this amount could secure health insurance coverage of around Rs 10 lakh per annum for a family of four, considering factors like coverage type and insured age.

According to an official, this tax rate decrease could result in lower premiums or expanded health coverage options based on people’s needs.

This proposal, pending until after the general elections in the GST Council, has been advocated for by various bodies, including the Parliamentary Standing Committee on Finance. They emphasised the need to rationalise GST rates, particularly for health and term insurance products, to make them more accessible.

GST is applicable to health insurance premiums during the purchase or renewal process. In simpler terms, any premium paid for a medical or health insurance policy is subject to GST.

Under the HSN code 997133, the GST rate for health insurance premiums is 18%, aligning with other insurance schemes.

However, exemptions are granted for specific government-run health insurance schemes targeting economically disadvantaged segments of society. These schemes, such as the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme operated by the Trust established under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities Act, 1999 (44 of 1999), are not subject to GST, meaning the sale of such health insurance policies incurs no GST.

Furthermore, deductions for health insurance premiums under income tax are limited to Rs 25,000 or Rs 50,000, depending on conditions.

Recognizing the financial vulnerability of many in the country due to healthcare costs, a 2021 Niti Aayog report suggested extending the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) scheme to the ‘missing middle’ on a paid basis. PMJAY currently provides free health coverage of up to Rs 5 lakh per year to 107 million poor households.

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