Chapter 99 - GST on Health Insurance Policies: HSN Code and Rates Explained

• Health insurance premiums are subject to an 18% GST under the HSN code 997133, but certain government schemes are exempt from this tax.
• GST applies only to premiums paid after July 1, 2017. No additional GST is charged if premiums were paid in advance for multi-year policies before this date.
• Businesses can claim an input tax credit (ITC) for health insurance premiums paid for employees, but ITC is not available for personal health insurance policies.

Today, where healthcare costs are rising and medical emergencies can strike at any time, health insurance has become a necessity. Whether you are someone planning for the future or facing unexpected medical bills, having the right health insurance can provide peace of mind. However, with the introduction of Goods and Services Tax (GST) in India, many people are confused about how it applies to health insurance premiums.This article will explain everything you need to know about GST on health insurance – from its applicability to understanding the HSN code and GST rate.

Below are the GST and HSN details for health insurance services.

Here are the different types of GST applicable to health insurance premiums:

• Central Goods and Services Tax (CGST) : Levied by the central government on intrastate transactions. CGST is applicable at a rate of 9% on the premium amount.
• State Goods and Services Tax (SGST) : Levied by the state government on intrastate transactions. SGST applies at a rate of 9% on health insurance premiums.
• Integrated Goods and Services Tax (IGST) : Applicable on interstate transactions and levied by the central government. IGST is charged at 18%, which is the sum of CGST and SGST rates.

The introduction of GST in India on July 1, 2017, significantly impacted the health insurance sector. Before GST, health insurance premiums were subject to a 15% service tax, including a 14% basic service tax, a 0.5% Swachh Bharat Cess, and a 0.5% Krishi Kalyan Cess. This relatively straightforward tax structure resulted in a cascading effect of taxes, where tax was levied on tax, increasing the overall cost of health insurance premiums.With the implementation of GST, the tax rate on health insurance premiums increased to 18%. However, the GST regime aimed to create a unified tax structure to eliminate the cascading effect of multiple taxes and simplify the tax process.

Impact of GST on Health Insurance Renewals

The introduction of GST has impacted health insurance policy renewals. Policyholders who paid premiums upfront for multi-year policies before July 1, 2017, are not required to pay additional GST on those premiums. GST applies only to premiums paid after this date. For instalment-based premiums, GST is levied solely on payments made after July 1, 2017, not the entire premium.

The GST Council, a constitutional body comprising members from the Union and State/UT Governments, determines GST rates and exemptions. During its 54th meeting on September 9, 2024, the Council discussed GST on insurance and recommended forming a Group of Ministers (GoM) to comprehensively review GST on life and health insurance.
The GoM, convened by Bihar’s Deputy Chief Minister, Mr Samrat Chaudhary, was tasked with this review. During the 55th GST Council meeting on December 21, 2024, the Gom requested additional time to finalise its recommendations.Several government-backed insurance schemes are exempt from GST. These include:

• Ayushman Bharat PM-JAY : This scheme provides health coverage of ₹5 lakh per family per year for secondary and tertiary care hospitalisation. Over 36.5 crore Ayushman cards have been issued under this scheme.

• Rashtriya Swasthya Bima Yojana (RSBY) : This scheme provides health protection to individuals below-poverty line (BPL). The scheme offers cashless hospitalisation coverage of up to ₹30,000 per family per year, covering up to five family members. Beneficiaries receive a biometric-enabled smart card for accessing services at empanelled hospitals nationwide. The scheme also includes transportation allowances and covers pre- and post-hospitalisation expenses.

• Universal Health Insurance Scheme : This scheme is meant for the BPL. In addition to standard health coverage, it offers personal accident coverage for the primary earner, providing financial compensation in case of disability or death. Additionally, UHIS includes preventive health check-ups and ambulance services.

• Niramaya Health Insurance Scheme : This scheme provides affordable health insurance for persons with disabilities (PwDs) under the National Trust Act. It offers coverage up to ₹1 lakh, including dental care, non-surgical hospitalisation, and corrective surgeries. The scheme covers transportation costs and requires no pre-insurance medical tests. Beneficiaries must have a valid disability certificate and a UDID card.

The GST on health insurance is applied to the base premium amount. For example, if your base premium is ₹20,000, the GST amount would be calculated as follows: GST Amount = (Base Premium х GST Rate) / 100 = (₹20,000 х 18) / 100 = ₹3,600.Therefore, the total premium payable would be ₹20,000 + ₹3,600 = ₹23,600.If you have earned a no-claim bonus (NCB), which is the reward you receive for not raising any claim during the financial year, it can reduce your premium. Suppose you have an NCB of 20%; your base premium will be reduced by 20%.So, the new base premium would be ₹20,000 - (₹20,000 х 20 / 100) = ₹16,000.The GST amount on this reduced premium would be (₹16,000 х 18) / 100 = ₹2,880. Thus, the total premium payable after applying NCB and GST would be ₹16,000 + ₹2,880 = ₹18,880

Input tax credit (ITC) on health insurance under the GST regime in India can be complex. It allows businesses to reduce their tax liability by claiming credit for the GST paid on business-related purchases, including employee health insurance premiums. However, ITC on health insurance is blocked under Section 17(5) of the CGST Act, except in specific cases.For example, ITC is available if health insurance is obligatory for an employer to provide to its employees under any law in force.Also, during the COVID-19 pandemic, the Ministry of Home Affairs mandated medical insurance for workers in offices, workplaces, factories, and establishments. Businesses could claim ITC on the GST paid for these health insurance premiums in such cases.To claim ITC, the business must be registered under GST, and the health insurance policy must be used for business purposes, such as providing coverage for employees. The claimant must possess a valid tax invoice or debit note, and the supplier must have paid the GST to the government. Additionally, the claimant must have received the health insurance services and filed the required GST returns.

It is important to note that you can claim a deduction on health insurance premiums under Section 80D of the Income Tax Act. While this does not eliminate the GST burden, it does offer some relief when filing your tax returns.

• If you pay premiums for yourself, your spouse, children, or parents, you are eligible for deductions up to ₹25,000 (or ₹50,000 for senior citizens).
• If you are a senior citizen and, along with your premium, you are also paying the premium for senior citizen parents, the deduction can go up to ₹50,000, which is beneficial for those with elderly family members.

However, remember that the deduction applies to the total premium, including the GST component. For example, if your health insurance premium is ₹10,000 and the GST is ₹1,800, the total amount eligible for deduction would be ₹11,800.

Understanding the GST on health insurance policies and using a GST calculator can help you make informed decisions when purchasing or renewing your coverage. While the 18% GST rate applies to most premiums, exemptions exist for government-sponsored schemes.Additionally, businesses can benefit from input tax credits (ITC) for employee health insurance premiums, reducing overall costs. It's important to remember that the GST applies only to premiums paid after 1st July 2017, and tax deductions under Section 80D of the Income Tax Act are available to ease the financial burden.