GST 2.0: Individual Health Insurance Premiums To Be GST-Free From Today

GST 2.0: Individual Health Insurance Premiums Now GST-Free

All health insurance policies were previously subject to 18 per cent GST (Representational Image)

New Delhi:

At the 56th GST Council meeting on September 3, Union Finance Minister Nirmala Sitharaman unveiled a significant reform under GST 2.0. Starting today, individual health insurance premiums are completely exempt from GST. This initiative aims to enhance affordability of healthcare and insurance across the nation.

What This Change Means For Your Premiums

Previously, health insurance policies carried an 18 per cent GST charge, which substantially increased premium costs. For instance, a policy with a Rs 15,000 annual premium would actually cost Rs 17,700 after GST. Under the new GST 2.0 framework, the same premium will cost exactly Rs 15,000, resulting in annual savings of Rs 2,700.

Advantages For Policyholders

Direct savings: Annual premiums decrease by nearly 18 per cent.

Simplified financial planning: Health insurance becomes more straightforward to incorporate into yearly budgets.

Enhanced coverage options: Savings can be allocated toward higher coverage levels or additional benefits.

Greater relief for elderly: Senior citizens, who typically pay higher premiums, will experience more substantial financial relief.

Coverage Of The GST Exemption

The exemption applies to individual health insurance plans, family floater policies, senior citizen coverage, and top-up or super top-up plans purchased after September 22.

Employer-provided group insurance remains outside the exemption's scope.

Effects On Insurance Companies

While policyholders benefit from GST savings, insurance providers will no longer be able to claim Input Tax Credit (ITC) on GST paid for operational expenses such as agent commissions, rent, software services, and brokerage fees. This could potentially increase insurers' operational costs, which might eventually be reflected in slightly higher base premiums upon renewal.

For example, with a policy costing Rs 20,000 annually:

Base premium: Rs 16,950

GST: Rs 3,050

Total before GST 2.0: Rs 20,000

Due to ITC loss, insurers may absorb some costs, resulting in net savings for policyholders potentially ranging from 3-6 per cent, varying by plan type.

Regulatory Guidelines

According to the Insurance Regulatory and Development Authority of India (IRDAI) Product Regulations, 2024, and the Health Insurance Master Circular, insurers are only permitted to adjust premiums at policy renewal. Mid-term arbitrary premium increases are not allowed under the regulations.