Centre Proposes 12% GST for Health Insurance, Aimed at Expanding Coverage

In an effort to make health insurance more accessible and appealing, the Centre is contemplating a reduction in the GST tax rate on health insurance premiums. The proposed decrease would bring the tax rate down to 12% from the current 18% for premiums up to Rs 30,000. As per current market trends, a premium within this range could secure health insurance coverage of approximately Rs 10 lakh per annum for a family of four, subject to varying factors such as coverage type and the insured individuals’ ages.

The potential reduction in the tax rate has the capacity to result in decreased premium costs or the introduction of supplementary health coverage options, tailoring to the diverse needs of the populace, as indicated by an official source. This proposal, pending for consideration, may be deliberated upon by the GST Council subsequent to the general elections.

Earlier this year, the Parliamentary Standing Committee on Finance, under the leadership of BJP MP Jayant Sinha, emphasized the necessity to rationalize the 18% GST rate on insurance products, particularly emphasizing health and term insurance. The committee recommended the reduction of GST rates applicable to health insurance products, with a special focus on policies for senior citizens, microinsurance policies, and term policies, in a bid to enhance affordability and accessibility.

Following the implementation of GST, individuals are subject to an 18% GST when purchasing health insurance, marking a 3% increase from the previous Service Tax of 15%, inclusive of applicable cess.

It’s important to note that within the income tax regime, the deduction for health insurance premiums under section 80D is presently capped at either Rs 25,000 or Rs 50,000 based on specific conditions.

Recognizing the precarious financial situation of many individuals who are at risk of impoverishment due to medical expenses, a 2021 Niti Aayog report recommended the extension of the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) scheme to the ‘missing middle’ on a paid basis. PMJAY presently offers Rs 5 lakh of annual free health coverage to 107 million underprivileged households, constituting 40% of the population.

Efforts to reduce the GST on health insurance premiums could potentially alleviate the financial burden on individuals and families, ultimately making crucial health coverage more attainable for a larger segment of the population.