GST removal on health insurance: Impact & benefits

Earlier, 18% GST was added to all health insurance premiums, which made them costlier. For example, if your annual premium was INR 20,000, you would end up paying INR 23,600 after including GST. This extra tax made it harder for many people to afford health insurance.

With GST on health insurance removed, premiums have become more affordable, making it easier for more people to buy and maintain their policy.

The following key changes were announced in the 56th GST Council Meeting held on September 3, 2025:

• 18% GST on individual health and life insurance policies has been removed.

• The change applies to both new and existing policyholders.

• It will help reduce premium costs and make insurance more affordable.

• The GST exemption covers:

◦ Individual health insurance policies

◦ Family floater plans

◦ Health insurance policies for senior citizens

◦ Reinsurance policies

The following people will benefit from the GST removal in health insurance:

1. Individual policyholders:

Those who purchase individual health insurance plans will benefit the most. With no GST, premiums will be lower, making policies more affordable. This can encourage more people to get insured. Moreover, with lower costs, people might go for higher coverage or add important riders or add-ons to stay protected against rising medical bills.

2. Families investing in a family floater:

Family floater plans cover each member of a family under one policy, but the premium usually depends on the age of the oldest member. This often makes it expensive. Now, with no GST, these plans become a lot more budget-friendly for families.

3. Senior citizens:

Health insurance is especially important for senior citizens, but many still lack it, primarily due to the high costs. As people age or develop health issues, premiums go up, making it hard for seniors with limited income or savings to afford a plan. Removing GST can make health insurance more affordable for them.

4. Small business owners and self-employed:

This group often avoids buying insurance due to irregular income. Lower premiums make it easier for them to buy and maintain health insurance coverage long-term.

With the removal of GST, policyholders can now save up to 18% on their health insurance premiums. The actual savings will vary based on the cost of each individual policy.

For example, if your yearly premium is INR 20,000, you won’t have to pay the extra INR 3,600 GST anymore. So, you save INR 3,600 every year.

The removal of GST has made health insurance more affordable in several ways, such as:

1. Lower premiums for policyholders:

Policyholders no longer have to pay 18% GST on individual health insurance premiums, which brings down the overall cost significantly.

2. More affordable for individuals and families:

With lower premiums, it is easier for people to buy or renew their health insurance. Those who previously avoided it due to high costs may now consider getting covered.

3. Scope for better coverage:

Since premiums are lower, many people may now choose a higher sum insured. They might also add extra benefits like riders for better protection during medical emergencies.

4. Easier for seniors and low-income families:

Health insurance is now more affordable for those with limited incomes. This is especially helpful for senior citizens who need coverage the most.

5. Long-term savings:

Over time, policyholders can save thousands of rupees every year, depending on their premium amount.

While the removal of GST reduces costs for policyholders, it also brings some challenges for both insurers and customers. Let’s take a closer look:

• Loss of input tax credit:

Insurance companies spend money on services like agent commissions, advertising and customer support, and they pay GST on all these. Earlier, they could claim this tax back through something called the Input Tax Credit (ITC). Now, since there is no GST on medical insurance, they can no longer claim these refunds. As a result, insurers have to bear these extra costs themselves.

• Inverted duty structure:

‘Inverted duty structure’ points out that there is a mismatch in how taxes are paid and recovered. It means insurance companies have to pay GST on the things they buy for their business, but they don’t charge GST when they sell insurance policies. Due to this, they can’t get back the GST they paid, which increases their costs and lowers their profits.

• Customers may not get cheaper insurance:

While removing GST lowers the tax on policy premiums, it doesn’t guarantee cheaper insurance for customers. Since insurers can’t claim Input Tax Credit (ITC) anymore, they might have to raise the base premium or reduce some benefits. So, even though GST is gone, the final price customers pay might not drop much.

• Updating systems and pricing to meet new tax rules:

With the change in GST rules, insurance companies have to update their billing and pricing systems to follow the new regulations. Insurers need to put in extra time and work to ensure compliance with the new tax rules. These changes make the transition more difficult for insurance companies.

Many experts believe it would be better to lower the GST to 5% instead of removing it completely, while still allowing insurers to claim input tax credits. This way, customers save money, and insurers don’t face extra costs. It is a practical solution that works for everyone.

1. What is GST on health insurance?

GST (Goods and Services Tax) is a tax that was added to health insurance premiums. It increased the premium cost by 18%. It has now been removed.

2. When did the zero GST benefit start?

The 0% GST benefit came into effect on September 22, 2025.

3. Has GST been removed from all health insurance plans?

No, GST has only been removed from individual health insurance policies, including family floater plans and senior citizen health insurance. Group health insurance may still attract GST.

4. How does GST removal help policyholders?

Removing GST makes health insurance cheaper. The premium becomes lower, so more people can afford to buy coverage.