The Goods and Services Tax has brought significant changes across various industries, including the insurance sector. Since its implementation, GST has affected how policyholders pay for their health insurance plans, making an impact on premiums and tax benefits. Understanding the implications of GST on health insurance can help individuals and families make informed financial decisions.
With medical expenses rising in India, having a health insurance plan is no longer a luxury but a necessity. The inclusion of GST on health insurance policies has increased costs for policyholders, but it also comes with certain tax advantages. This article explores how GST impacts health insurance premiums, the tax benefits available for families, and how individuals can optimise their tax savings while filing GST returns.
Understanding GST on health insurance
GST was introduced in India on 1 July 2017 to simplify the tax system by replacing multiple indirect taxes with a unified tax structure. It applies to various goods and services, including financial products like health insurance.
GST rate on health insurance premiums
Currently, health insurance premiums attract an 18 percent GST. This rate applies to all types of health insurance policies, including individual, family floater, critical illness, and senior citizen plans. Before GST, health insurance premiums were subject to a lower tax under the previous service tax regime, which was around 15 percent. The increase in tax has led to higher premium costs for policyholders.
Impact of GST on health insurance premiums
The introduction of GST has made health insurance policies slightly more expensive. Since the tax is levied on the premium amount, policyholders end up paying a higher cost for the same level of coverage. For instance, if an individual purchases a health insurance plan with a premium of Rs.10,000, the GST component alone adds Rs.1,800, increasing the total payable amount to Rs.11,800.
Although GST has increased the financial burden on policyholders, it is important to consider the benefits that health insurance offers. Medical expenses continue to rise, and investing in a policy ensures financial security during emergencies. Moreover, tax benefits on health insurance premiums help individuals offset some of the increased costs due to GST.
Tax benefits on health insurance premiums under Section 80D
Despite the impact of GST on health insurance premiums, policyholders can still claim tax benefits under Section 80D of the Income Tax Act. This section provides deductions on the premiums paid for health insurance policies, helping families reduce their taxable income.
Tax deductions for individuals and families
- Individuals can claim a deduction of up to Rs.25,000 per financial year on premiums paid for self, spouse, and dependent children.
- If the policyholder is a senior citizen (aged 60 and above), the deduction limit increases to Rs.50,000.
- An additional deduction of Rs.25,000 is available for purchasing health insurance for parents. If the parents are senior citizens, this limit extends to Rs.50,000.
- The maximum deduction a family can claim under Section 80D is Rs.1,00,000 if both the taxpayer and parents are senior citizens.
Effect of GST on tax deductions
While GST increases the premium amount, policyholders can claim tax deductions only on the total premium paid, including GST. This means the full amount paid for health insurance, inclusive of the GST component, qualifies for deduction under Section 80D.
For example, if an individual pays Rs.15,000 as premium and Rs.2,700 as GST (total Rs.17,700), the entire amount is eligible for tax benefits. This helps offset some of the additional costs incurred due to GST.
How GST affects family health insurance policies
Family health insurance plans are a cost-effective way to secure medical coverage for all family members under a single policy. However, the impact of GST on family plans is more noticeable due to higher premium amounts.
Increased cost of family floater policies
Since family floater plans cover multiple members, their premiums are generally higher than individual policies. With an 18 percent GST applied, the final cost of the policy increases significantly. For instance, if a family health insurance plan has a premium of Rs.30,000, the GST component adds Rs.5,400, making the total cost Rs.35,400.
Tax savings for families
Families can still benefit from tax savings under Section 80D. By including parents in a family floater plan, individuals can maximise their deductions. If the policyholder pays for a health plan that includes senior citizen parents, they can claim up to Rs.50,000 in deductions for their parents’ coverage alone.
Optimising tax savings while filing GST returns
For self-employed individuals and business owners, GST on health insurance can be partially offset by claiming input tax credit. While salaried individuals cannot claim GST refunds, business owners who provide health insurance for employees can include the GST component in their GST returns, reducing their overall tax liability.
Comparing pre-GST and post-GST impact on health insurance
Before GST implementation
- Health insurance premiums were subject to a service tax of 15 percent.
- The total cost of health insurance was lower compared to current rates.
- Policyholders could claim tax deductions on premiums paid.
After GST implementation
- The tax rate increased to 18 percent, making health insurance premiums more expensive.
- Policyholders now pay a higher total amount for the same coverage.
- Tax benefits under Section 80D remain unchanged, helping individuals reduce taxable income.
Should you buy health insurance despite GST?
While GST has increased the cost of health insurance, not having a policy can lead to higher out-of-pocket medical expenses during emergencies. The financial protection offered by a health plan outweighs the additional cost incurred due to GST.
Reasons to invest in health insurance despite GST
- Medical inflation is rising, making healthcare expensive. A policy ensures financial security.
- Tax deductions on health insurance premiums help reduce overall income tax liability.
- Many insurers offer flexible payment options and discounts to make policies more affordable.
- Family floater plans provide extensive coverage, ensuring protection for all family members.
Conclusion
The introduction of GST on health insurance has resulted in higher premium costs for policyholders. However, the tax benefits under Section 80D provide financial relief by reducing taxable income. Families can still optimise their tax savings by including parents in their health insurance plans and maximising their deductions.
Despite the increased cost, investing in health insurance remains a smart financial decision. Medical emergencies can arise unexpectedly, and having a policy ensures that individuals and families receive the necessary treatment without financial strain. While GST may have increased the immediate expense, the long-term benefits of health insurance far outweigh the additional cost. Understanding how to claim tax benefits and file GST returns can help individuals manage their financial planning more effectively, ensuring continued access to quality healthcare.
