A health insurance is a form of risk management that helps to reduce the financial risks associated with unexpected health issues, accidents, or emergencies. In India commodities and services are subject to a single indirect tax known as the Goods and Services Tax ( GST ) which was under the CGST Act, 2017. The central taxes such as service tax, additional excise and customs duties, and central excise are included under CGST, Act 2017. The taxes on health insurance are covered under the GST Act.
The Parliamentary Panel on Finance has recommended reducing the Goods and Services Tax ( GST ) on health insurance products for senior citizens and microinsurance products below 18 per cent to make it more affordable.
Read More: Below 18% GST on Health Insurance: Recommends Parliament
GST Rate on Health Insurance
When you buy a health insurance policy, you must pay 18% GST on premium payments for the policy. Note that there is an increase of 3% compared to old tax rules applicable to this industry.
Impact of GST impact Health Insurance Premium?
Current and advance premiums will be charged GST. This would be regardless of the payment method you select. You can visit the official GST portal for more information. Note that these new tax laws won’t apply to anybody who bought their policies before the introduction of the GST. As in, they won’t have to adjust for GST. However, when these customers renew their plan, they must pay the GST on the premium as all types of health plans are subject to the Goods and Services Tax.
Calculation of Health Insurance Plan Before GST.
The sum insured was Rs. 10 lakhs and the applicable premium was Rs. 25,000 plus taxes. Since a 15% tax was applicable, your final payable amount was Rs. 28,750 (Rs. 25,000 premium + Rs. 3,750 tax).
Calculation After GST Introduction
The Sum insured was Rs. 10 Lakhs and the applicable Policy Premium was Rs. 25,000 ( assuming the rates are unchanged ). The 18% GST rate which is Rs. 4,500 applicable. Then the Final payable amount would be Rs. 29,500. There is a difference in the amount of premium just on the rate of tax.
Tax Savings Under Section 80D
Purchasing Health insurance will protect the financial emergency along with medical emergencies. In addition to protecting us financially, health insurance enables us to reduce tax obligations. One can save up to Rs. 1 lakh under Section 80D of the Income Tax Act on buying insurance. There is a provision to deduct the cost of the preventative health checkup in addition to the insurance premium. A maximum exemption of Rs 5,000 is permitted under preventive health checkups annually. The deductions can be claimed on the premium paid for health insurance policies for yourself, your spouse, children, and parents, subject to certain conditions. Central government-sponsored health insurance schemes might have unique tax treatment.
Types of GST on Health Insurance
GST on Premiums: Health insurance policies in India are subject to GST on the premium amount. There is a stipulated GST rate on the premium of an insurance policy. GST rate for health insurance premiums typically falls under the 18% tax slab, it may vary according to the annual Financial budget. The insurer will charge GST on the premium amount.
Input Tax Credit ( ITC ): Insurance companies can claim Input Tax Credit for the GST they pay on various services, such as legal and accounting services, office rent, and more. This helps insurance companies reduce their overall GST liability, which could potentially lead to lower premium rates for policyholders.
GST on Services: In addition to the GST on premiums, there may be GST applicable on various services related to health insurance. For instance, if you consult a doctor or avail of a medical service that is not covered by your policy, you might be liable to pay GST on that service directly.
Impact on Policyholders:
Policyholders should be aware that the GST on premiums increases the overall cost of their health insurance policies. The negative impact of GST is that it affects both new and existing policyholders in a way. Therefore, there is no option for policyholders to avoid paying GST on health insurance. When you renew your health insurance coverage each year, you will be required to pay GST at 18% on the premium amount.
Conclusion
Health insurance is a necessary obligation in the modern world, with or without GST. You must invest in a policy that offers sufficient health insurance coverage. The cost of the premium should not be the only factor when purchasing an insurance plan. Other elements include the amount insured, the coverage provided, the availability of cashless hospitals, the simplicity of renewal, etc. Before buying a plan, consider all the aspects, and impact of GST on health insurance, compare the policies, and make an informed decision.
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