How does GST Impact Medical Insurance Premium?
Claim Settlement Ratio (OND 2018)
Network Hospitals across 500 cities
The introduction of the Goods and Services Tax (GST) in the year 2017 was a remarkable decision by the Government of India. It has removed the cascading effects of multiple taxes that existed earlier. GST is levied across the country on several goods and services including health insurance.
The GST on health insurance is charged at a rate of 18%. Earlier, the rate of service tax on insurance was 15% that included Basic Service Tax of 14%, Swachh Bharat Cess of 0.5% and Krishi Kalyan Cess of 0.5%.
Before we proceed to know the impact of GST on potential policy buyers, let us understand about GST.
GST is a single indirect tax applied at the point of consumption of various goods such as household items, food, textile, electronic products, etc. and services like transportation,real estate, insurance, etc. There are four types of GST such as:
GST is applied on various goods and services under five slabs, that is: 0%, 5%, 12%, 18%, and 28%. Medical insurance products are charged at a rate of 18%.
All insurance schemes including health insurance come under the ambit of the Goods and Services Tax (GST). This means that the premium you pay towards your medical insurance policy would attract an 18% GST, as specified above.
After the implementation of GST, there has been a hike in insurance premiums for the buyers. From the earlier 15% service tax, they will now have to pay an additional amount based on the current rate.
The premium you pay towards your health plan offers you comprehensive coverage for various medical expenses which is not just limited to hospitalization but goes beyond that. That is, expenses incurred during the policy period for pre-and-post hospitalization, daycare treatments, diagnostic tests, OPD costs as well as maternity care are also covered in such plans.
The GST on health insurance products is applicable to the entire premium amount. This is not so in case of life insurance where GST is applicable only on the risk coverage component of the premium and not on the investment component which provides maturity benefits.
Example: Let us suppose, you opted for a health insurance policy of coverage amount of Rs 5 Lakh and the premium cost is Rs 11,000 per year.
Now, let us see the cost impact:
The tax applicable was 15%. That is, the premium to be paid would have been:
(15% GST on 11,000) + 11,000 = 12,650
The current tax applicable is 18%. That is, the premium to be paid is calculated as below:
(18% GST on 11,000) + 11,000 = 12,980
As a buyer, you will have to spend Rs 12,980 on your medical insurance premium.
After the implementation of the GST, new policy buyers and those renewing their policy are required to pay a higher premium amount. However, those who have purchased policies earlier with a longer-term period would not be impacted by GST. Yet, when they renew their plans, the premium paid by them will be based on present tax rates.
As explained above, there has been a clear hike in the premium prices for health insurance buyers. Nevertheless, there are some advantages they can look forward to.
Owing to the competition in the market, health plans are now available for many affordable prices. This is a major benefit since healthcare costs are mounting steadily and high premiums can further increase the financial burden for people. Now, that will not happen. Health insurance policies with affordable premiums become highly rewarding.
In addition to this benefit, buyers are also experiencing convenience in terms of seamless processes for buying health policy and hassle-free claim settlement.
With the implementation of GST, all health insurance buyers are bound to pay additional charges based on the applicable tax rates. Moreover, individuals who have bought health policies cannot avail input tax credit. Also, corporate policyholders having group policies for their employees cannot avail input tax credit.
Health insurance is today’s times holds a great significance as far as financial protection of a family is concerned. It is extremely important to realize that by paying the premium, with additional GST charges, you are getting a health cover which is extensive in nature and which covers all the vital medical expenditure you are likely to incur during an emergency.
Get affordable health plans from Religare Health Insurance that right meet the specific health needs of you and your family.