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GST on health insurance has been a much-talked topic for the 48th GST Council meeting. Reports indicate a GST rate slash from 18% to 12% on the sale of health insurance policies in India. The article covers the latest GST rate on health insurance. Can we claim GST input on health insurance? Input Tax Credit (ITC) on employees' health insurance under GST.
GST on health insurance premiums is applicable at the time of the sale or renewal. Simply put, the premium paid on a medical or health insurance policy will attract GST.
The GST rate on health insurance premiums is 18% under the HSN code 997133, like any other insurance scheme.
However, there are exemptions given for certain government-run health insurance schemes for economically weaker sections of society. These include the Universal Health Insurance Scheme and the Niramaya Health Insurance Scheme run by the Trust set up under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999). It means the sale of such health insurance policies attracts a nil rate of GST.
The following types of GST are levied on health insurance-
Before GST, medical insurance or health insurance attracted Service Tax. Any sale of insurance policies would attract a total Service Tax of 15% split up as 14% towards the Basic Service Tax, 0.5% towards Swacch Bharat Cess (SBC), and 0.5% towards Krishi Kalyan Cess (KKC).
However, after implementing GST, health insurance's GST has been fixed at 18%. The insurance industry has consistently demanded a reduction in the GST rate on health insurance premiums to as low as 5%.
These premiums have increased over the due course, especially during the pandemic between 2019 and 2021, as Indians rushed to buy these medical insurances to financially secure themselves and their family at times of medical emergency. Yet, the health insurance penetration in the Indian market is low, one of the reasons being the high GST rate on health insurance of 18%.
In May-June 2022, the GST rate Fitment Committee rejected the proposal of lowering the GST on health insurance premiums, including other schemes such as life and third party, ahead of the 47th GST Council meeting.
However, ahead of the 48th GST Council meeting, there are speculations that the Council will deal with this matter. The rate may be slashed from 18% to 12% providing a breather for Indian citizens to safeguard themselves by buying health insurance policies at a much lower price.
However, the 48th GST Council meeting held in December 2022 did not change the GST rate on health insurance. Instead, Council clarified that not levying GST on insurance on the No-claim bonus offered by insurance companies. Hence, it is deductible from the premium without a GST charge.
The GST on health insurance and HSN for the service are given below-
Description of service
Accident and health insurance services of all kinds
|Universal health insurance scheme||Nil||Heading 9971 or Heading 9991|
|Niramaya Health Insurance Scheme run by the Trust set up under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999)||Nil||Heading 9971 or Heading 9991|
In the case of older policies bought before the GST law was introduced, only the renewal shall attract a GST rate of 18%. Hence, they need not adjust the service taxes paid for the notified GST rate. But when insurance holders renew their policy, they must bear the GST on health insurance premiums.
With GST, the cascading effect of taxes was removed. Hence, the positive aspect of GST on health insurance is that there is no tax on tax effect. Accordingly, it helped the insurance companies to claim GST paid on purchases as ITC while paying GST on sales, which was not available in the erstwhile indirect tax regime.
Yet, the price of health insurance policies for the policyholders shot up due to GST compared to the erstwhile indirect tax or service tax.
Let’s understand with the help of an example-
|ST at 15%/ GST at 18% (B)||3,750||4,500|
|Premium payable (A)+(B)||28,750||29,500|
*Assumed that the insurer or insurance company has not revised the premium rate in due course.
GST is calculated on the premium value of the health insurance policy, either fresh or renewed. Circular 186/2022 dated 27th December 2022 also clarifies that the premium value after the reduction of no claim bonus is the assessable value for computation of GST. In other words, no GST is levied on no-claim bonus.
No-claim bonus refers to an amount deducted from the premium as a benefit to insurance policy holder for not claiming any policy amount during the period that the insurance policy is in force.
18% GST is levied on the sale or renewal of health insurance to keep it at par with all other life and vehicle insurance policies in India that are not otherwise exempted, as explained in the GST rate table given in the earlier section of this article.
Yes, the entire GST paid on health insurance would qualify for a tax deduction under Section 80D of the Income Tax Act. Any amount paid for bearing the medical insurance premiums is eligible for an income tax deduction. The extent of deduction will depend upon the total paid premium and the relevant tax laws that change annually at the time of the Union Budget.
Under Section 17(5)(b) of the CGST Act, a business cannot claim GST paid on health insurance as an input tax credit or ITC. However, it can claim ITC on GST on health insurance for its employees only if it is mandated under any labour law in India that it is obligatory to buy health insurance policies for the employees. Further, ITC remains available where GST is paid on the premium paid on employee accident insurance.
Yes, the GST amount paid on health insurance premiums is eligible for an 80D deduction along with the premium amount.