Impact of GST on health insurance

GST is a special tax, which is levied on the consumption of various goods and services like transportation, real estate, insurance etc. There are generally four types of GST, which are as follows:

• Central GST (CGST): During every transaction, a part of GST goes to the central government and is called CGST.
• State GST (SGST): Some part of the GST levied on every transaction goes to the state government, which is called State GST or SGST.
• Integrated GST (IGST): GST is levied on any transaction between two states or union territories, which is called IGST. IGST is levied even if there is a transaction between a state and another country. 
• Union Territory GST (UGST): The GST levied on transactions between Union Territories is called UGST.

GST is levied in five slabs (0%, 5%, 12%, 18% and 28%) based on different goods and services. Health insurance related products attract 18% GST.

With the introduction of GST, all central and state level taxes on goods and services, such as excise duty, VAT, luxury tax and entertainment tax, were removed. GST is made up of two main taxes, Central GST and State GST, that are divided equally

(Read more: Cashless health insurance)

All types of insurance policies are covered under GST, including health insurance. This means that the premium you pay for your medical policy attracts 18% GST. Since the implementation of GST, the expenditure on health insurance has increased slightly since earlier, one only had to pay 15% service tax on health insurance.

The premium you pay as per the health insurance plan provides you with comprehensive coverage for various medical expenses, which are not limited to hospitalization only. Insurance mainly covers pre and post hospitalization medical expenses, daycare treatment, diagnostic tests as well as medical expenses related to maternity care.

(Read more: What does health insurance cover)

On products related to health insurance, GST is levied on the full amount of the premium, whereas this is not the case in life insurance. If you are a life insured, then GST is applicable only on the premium portion (risk component). There is no GST on the investment component, which gives lifelong returns. For example, if you buy a health insurance policy for a coverage amount of 5 lakhs, the premium of which is Rs 11,000 per annum, then the effect of GST on it will be as follows:

Before GST: If we levy service tax on the amount instead of GST, then the premium to be paid by you as per 15% tax will be as follows:

(11,000 on 15% GST) = 1,650 + 11,000 = 12,650

 After GST: As you know, 18% GST has been levied on health insurance by the government, so the premium to be paid by you will be as follows:

(18% GST on 11,000) = 1980 + 11000 = 12,980

(Read more: What is not covered in health insurance)

Due to the increase in premium, the insurers are at risk of losing their customers and thus the insurance companies try to offer plans at a lower cost. Companies also try to make the process of buying insurance as easy as possible to woo customers.

GST helps in increasing the income of the government of the country and at the same time, it also makes the tax system of the government simple and transparent. The more transparency there is in the tax system of a country, the faster the economy of that country progresses.

Health insurance protects us from the expenses incurred on unexpected diseases. In view of the rising inflation and this era of serious diseases, buying health insurance for yourself and your family is a good idea. Health insurance provides you with financial assistance during any serious health emergency, so that you can fight diseases with confidence. If you have not bought a health insurance plan yet, then it may be in your best interest to research lower premium and higher coverage insurance policies and choose one of them to buy soon.

(Read more: Which is the cheapest health insurance)