Introduction of Goods and Services Tax (GST) in India put an end to the issue of multiple taxes. The GST has eliminated the cascading effect of taxes. The new tax regime impacted every sector, including the insurance sector which has seen a 3% increase in tax rate. The increased tax incidence has impacted personal finances of individuals too. Let us study the GST on health insurance policy and how it can affect the premium amount.
GST on health insurance policies
Prior to GST, 15% service tax was applicable on health insurance policies. Insurance companies now levy 18% GST on health insurance policies. Let us see how it impact the premium you pay every year to renew the policy
Consider a health insurance policy with a coverage of INR 10 lakh that comes for a premium of INR 20,000. In this case, the GST on the premium amount is 18% which will be INR 3,600. The total amount payable will be INR 23,600. In the pre-GST era, the same policy would have cost you INR 23,000—at 15% service tax rate.
When you renew the policy, the premium amount will include GST of 18%.
GST impact on tax deductions
Under the GST regime, insurance falls under the category of services and the tax benefits for group policyholders are no longer available.
Taxation benefits under Section 80D
The premium amount paid for a health insurance policy is deductible under Section 80D of the Income Tax Act. The maximum deduction is capped at INR 25,000 for individual, spouse and child. If you are paying the premium for your parents, you get a deduction of another INR 25,000. If parents are above the age of 60, deduction in taxable income can go up to INR 50,000.
GST on Mediclaim policy will be levied as an indirect tax on the service. The amount charged under GST can be claimed as a deduction. If you have a policy of INR 10 lakh and you pay a premium of INR 8,000 with a GST at 18% of INR 1,440, the total premium amount will be INR 9,440. You can claim a deduction of the entire INR 9,440 paid under Section 80D.
The amount of GST payable on the basic premium will be eligible for a deduction under section 80D. But keep in mind, the present investment limit will estimate the deduction amount under the section.
Advantages of GST on medical insurance
Certainly, the insurance premium is dearer due to GST rate of 18%. But it has also led to an increase in competition between insurers. They now offer health insurance plan at lower and highly affordable prices. Insurance companies have cut down on expenses incurred for the issue of the policy. They have also made the process of buying and renewing health insurance quick and seamless. It has helped attract a lot of new insurance buyers and has improved the quality of service offered.
Disadvantages of GST on health insurance
The drawback of GST is that it applies to new policy buyers as well as old policy holders. Hence, there is no way out for the policyholders to escape GST on health insurance. You will have to pay GST at 18% on the premium amount every year when you renew the health insurance policy.
Irrespective of the payment mode you choose, on-date premiums and advance premiums will charge GST.
When you purchase a health insurance policy or renew the policy, you can check the health insurance GST rate on the premium sheet. Check the premium amount along with the GST and make a well-informed decision. The premium amount should not be the sole reason to buy the insurance policy. You need to consider other factors like the sum insured, coverage offered, network of cashless hospitals, ease of renewability and more. Keep all the factors in mind and compare policies before making the final decision.
GST or not, health insurance is an essential requirement in today’s times. You must invest in a policy that provides adequate coverage.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.