Summary
Rising health insurance premiums coupled with 18% GST are making policies unaffordable for India’s middle class. Here’s how taxation is impacting coverage—and what needs urgent reform.
Why Middle-Class Indians Are Dropping Health Insurance
Health insurance GST impact is now a serious concern for salaried families and small business owners. With premiums rising 10–25% annually and an added 18% GST, even basic health plans are turning unaffordable for the middle class.
The government encourages health insurance via Section 80D deductions, but then charges 18% GST on the very same premiums. This contradiction is leaving lakhs of policyholders stranded.
What’s Happening: Premiums Up, Tax Unchanged
Here’s why the burden is increasing:
- Premium hikes: Due to medical inflation, insurers are increasing prices every year.
- GST burden: 18% GST applies to all health insurance premiums (individual and group), per Notification No. 12/2017-Central Tax (Rate), which excludes health services but not insurance.
- No input credit for individuals: Unlike businesses, individual taxpayers cannot claim ITC on the GST paid.
How Much Is 18% GST Costing You?
| Annual Premium | GST (18%) | Total Payable |
|---|---|---|
| ₹15,000 | ₹2,700 | ₹17,700 |
| ₹25,000 | ₹4,500 | ₹29,500 |
| ₹50,000 | ₹9,000 | ₹59,000 |
| ₹75,000 | ₹13,500 | ₹88,500 |
This tax hits families with pre-existing conditions hardest, as their premiums are already higher.
Contradiction: Section 80D vs 18% GST
- Deduction under Section 80D: Up to ₹25,000 for self and family
- GST at 18%: Added over and above the premium
- Net benefit often gets neutralised by tax on the same service
It’s a case of one hand giving relief while the other takes it away.
Legal and Policy Perspective
- As per CBIC FAQs, GST applies to insurance services unless specifically exempt.
- The Insurance Regulatory and Development Authority of India (IRDAI) has raised concerns with the Finance Ministry in the past, seeking a lower GST slab for health cover.
- However, as of July 2025, no GST rate cut has been announced by the GST Council.
Delhi High Court in Max Bupa Health Insurance Co. Ltd. vs Union of India (W.P. No. 1968/2021) admitted the rising burden on policyholders, but held that taxation policy is the prerogative of the executive.
Expert View: Is It Time to Rethink GST on Health Cover?
“Health insurance should not be treated like luxury. It’s a basic necessity and must attract a lower GST rate—ideally 5% or exempt altogether,”
— Tax expert at Efiletax
Practical Tips for Middle-Class Policyholders
- Use full 80D limit: Maximise deductions by including parents’ policy
- Opt for family floaters: Lower cost than individual plans
- Compare and port: IRDAI allows switching policies without losing benefits
- Negotiate at renewal: Especially in group or employer-linked policies
- Ask insurer to split invoice: Some may show GST component separately to help assess true cost
What Should the Government Do?
- Rationalise GST: Exempt or reduce GST on health insurance premiums
- Treat it like education: Education services are exempt—so why not health protection?
- Offer ITC to salaried employees: Or allow higher deduction under Section 80D to offset GST burden
Final Word
Middle-class Indians are being priced out of health security—not because of illness, but because of tax policy. Health cover is not a luxury. It’s time the government recognises this and revisits the health insurance GST impact before the protection gap widens further.
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FAQ
Q1. Is GST applicable on all health insurance policies?
Yes, all health insurance premiums are subject to 18% GST unless the policy is fully government-sponsored or exempted.
Q2. Can salaried individuals claim GST paid on insurance as deduction?
No. GST is included in the premium amount. You can claim the entire premium (including GST) under Section 80D, but no separate GST credit is allowed.
Q3. Are there any GST-free health covers?
Government schemes like Ayushman Bharat and ESIC are exempt. Private policies are fully taxable.
Q4. Will GST on health insurance be reduced in the future?
There’s industry demand, but no decision yet. Keep an eye on upcoming GST Council Meetings for updates.