GST on Health Insurance: How Much Tax Do You Pay on Your Premium?

Have you ever wondered why your health insurance premium is a little higher than expected? If you’ve taken a close look at your policy invoice, you may have noticed an additional charge, GST (Goods and Services Tax).

Yes, GST applies to health insurance premiums, making your policy slightly more expensive than just the base premium. But how much are you really paying? Can you claim tax benefits on it? Does it vary by policy type?

Let’s simplify GST on health insurance, what it means for you, how it’s calculated, and how it affects your tax savings.

Key Highlights

• Flat 18% GST is charged on all health insurance premiums.
• No GST on claims, only on the premiums and some uncovered services.
• Section 80D deductions apply to the total premium including GST.
• Group and investment-linked policies are more expensive under GST.
• Govt schemes may offer GST exemptions for eligible individuals

What is GST on Health Insurance?

Introduced in 2017, GST replaced multiple indirect taxes like service tax, VAT, and excise duty to bring all services, including insurance, under a unified tax structure. Health insurance, being a service, attracts GST at a flat rate of 18% across India.

That means:

• GST is charged over and above your base premium
• It increases the total payable amount for your policy
• It does not affect the coverage or sum insured under the policy

While it increases the cost, GST has made taxation more transparent and easier to manage for both insurers and policyholders.

Types of GST Charges on Health Insurance

1. GST on Premiums: The most visible impact is on your health insurance premium itself. A flat 18% GST is added, making your overall cost higher than the pre-GST era when service tax was only 15%.

2. Input Tax Credit (ITC): Insurance providers can claim ITC on GST paid for legal, administrative, and other services. While this doesn't directly affect customers, it can help insurers keep premiums competitive.

3. GST on Services Not Covered: If your policy excludes specific medical services like diagnostic tests or consultations, you may end up paying GST on them separately.

4. GST on Claims: GST is not charged on claim payouts. However, if your treatment exceeds your policy limit and you pay out of pocket, GST may apply to that excess amount.

5. Exemptions on Government Schemes: Some government-sponsored health insurance schemes offer partial or full GST exemption, especially for economically weaker sections.

Current GST Rates on Health Insurance Premiums

Before GST (Pre-2017): Service Tax = 15%
After GST (Post-2017): GST = 18%

Example:

• Base Premium: ₹10,000
  GST @18% = ₹1,800
  Total Premium Payable = ₹11,800
• Base Premium: ₹20,000
  GST @18% = ₹3,600
  Total Premium Payable = ₹23,600

Note: GST applies only on the premium, not on the insured sum.

How is GST Calculated on Health Insurance Premiums?

Formula: GST Amount = (Base Premium × 18%)

For example:

If your base premium is ₹10,000:

• GST = (10,000 × 18) / 100 = ₹1,800
• Total Payable = ₹11,800

This calculation holds true whether your policy is monthly, quarterly, or annual.

Impact of GST on Your Health Insurance Premium

Here are some ways GST affects your health insurance policy:

• Higher Premium: Increased from 15% to 18%, directly raising your total cost.
• Group Plans Lose Exemption: Corporate/group insurance no longer enjoys earlier tax exemptions.
• Costlier Investment-linked Plans: ULIPs and endowment policies are now more expensive due to higher tax rates.

Despite this, you can offset the impact with income tax deductions.

Tax Benefits Under Section 80D

One major relief is that GST-inclusive premiums qualify for tax deductions under Section 80D of the Income Tax Act.

Deduction Limits:

• Self, Spouse, and Children: Up to ₹25,000
• Parents (Senior Citizens): Additional ₹50,000
• Self + Parents (Both Senior Citizens): Up to ₹1,00,000

Important: You can claim the full amount paid including GST as deduction.

Example:

• Base Premium: ₹10,000
  GST: ₹1,800
  Deduction Claimable: ₹11,800

While GST has increased the cost of health insurance premiums slightly, it has brought greater clarity and ease to the taxation process. With a flat rate of 18%, the system is uniform and predictable.

Thanks to Section 80D, policyholders can claim deductions on the entire premium amount, including GST—effectively reducing the financial impact.

Health insurance remains a critical investment in your family's wellbeing, and understanding how GST fits in helps you make more informed decisions.