GST on Health Insurance Why the PMO Is Stepping In
The GST on health insurance is under fresh scrutiny as the Prime Minister’s Office (PMO) has sought detailed feedback on affordability issues. This move follows rising concerns that the current 18% GST rate is making health policies costlier for middle-class Indians and small businesses alike.
Let’s break down the issue, what it means for taxpayers, and what the government might do next.
Why the Health Insurance Sector Is Facing Headwinds
According to government sources and insurance industry data:
- Penetration of health insurance remains under 40% in India
- GST at 18% applies on all non-government health insurance premiums
- Premiums have increased post-COVID due to rising treatment costs
- IRDAI has flagged concerns on policy cancellations due to unaffordability
- Industry bodies have requested reduction of GST to 5% or exemption
This has prompted the PMO to initiate a stocktaking exercise, seeking inputs from the Finance Ministry, IRDAI, and industry stakeholders.
Current GST Rate on Health Insurance
| Type of Health Insurance | GST Rate | Notes |
|---|---|---|
| Individual health insurance | 18% | Standard rate; no exemption |
| Family floater plans | 18% | Covers spouse and children |
| Corporate group health insurance (employee cover) | 18% | Paid by employer; also taxable |
| Government health schemes (like Ayushman Bharat) | 0% | Fully exempt as per Notification No. 12/2017 |
Legal Reference: GST applicability is governed by Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and relevant CBIC circulars. Exemptions apply only to central and state-sponsored health schemes.
What Is the Industry Demanding?
Health insurers and experts have proposed the following:
- Reduce GST from 18% to 5% on personal health insurance
- Allow input tax credit (ITC) for businesses offering employee medical cover
- Treat health insurance as a merit good like education and healthcare
These requests align with broader public health objectives, especially in a country where out-of-pocket medical expenses remain among the highest in Asia.
Expert View: What’s the Ground Reality?
According to tax consultant R. Suresh, “Health insurance is no longer optional—it’s a necessity. This discourages policy renewals.”
This is echoed by the General Insurance Council, which has formally written to the GST Council multiple times over the last 3 years.
Possible Outcomes from PMO Review
Here’s what could happen next:
- Formation of a GST Fitment Committee to review current rates
- Inclusion of health insurance in the next GST Council Meeting agenda
- Policy changes ahead of Budget 2026, with input from IRDAI
- Potential differential GST rates based on age group or policy type
If approved, this could bring relief to millions of taxpayers and increase insurance coverage nationwide.
What Should You Do as a Policyholder?
Until any change is notified, here’s how you can manage:
- Buy/renew policies before rate hikes if expected
- Opt for multi-year policies to lock GST at current rates
- Businesses: Consult your CA about input tax credit eligibility if offering employee cover
Summary
GST on health insurance is under PMO review amid rising costs and low penetration. With 18% GST making policies costlier, stakeholders urge reforms. Possible tax relief could be on the cards in upcoming GST Council meetings.
FAQs
Q1: Is GST applicable on health insurance?
Yes, 18% GST is levied on most non-government health insurance policies.
Q2: Is any health insurance exempt from GST?
Only government-sponsored schemes like Ayushman Bharat are exempt.
Q3: Can I claim ITC on health insurance?
Only in limited cases like mandatory employee cover, and subject to specific conditions under CGST Rules.
Q4: Will GST on health insurance reduce in 2025?
Possibly. The PMO’s recent review may lead to rate rationalization, but no official change has been notified yet.
Final Word
With the PMO stepping in, GST relief on health insurance might soon become a reality. If you’re a taxpayer, business owner, or CA—stay updated via Efiletax for the latest on rate changes, compliance, and planning tips.