How GST Applies To Health Insurance Premiums And What It Means To Policyholders

The majority of people in today’s society have developed a sense of health consciousness. With rising disease trends, health insurance plays a vital role in safeguarding and protecting you and your family from unexpected events that could drain your financial savings. This article explores GST for Health insurance premiums, the method of calculation, and what it means to policyholders looking to invest in a plan. 

Table of Contents

1. What is Health Insurance?

2. Overview of GST

3. Applicability of GST on Health Insurance

4. GST calculation on Health Insurance Premiums

5. Types of GST Applicable on Health Insurance:

• Central GST (CGST)
• State GST (SGST) or Union Territory GST (UTGST)
• Integrated GST (IGST)

6. GST On Different Health Insurance Plans

• Individual Health Insurance Plan
• Family Floater Plan
• Senior Citizen Health Plans
• Group or Corporate Health Insurance plan
• Government-Sponsored Schemes

7. Effects of GST on Policyholders

8. Advantages of GST Exemption on Health Insurance Premiums

9. How the GST Reform Affects Insurance Providers

10. Conclusion

11. FAQs

What is Health Insurance?

Health Insurance is a protective shield that defends you from expenses for treatment and healthcare. It is a safety net that offers financial security and a literal helping hand in times of medical emergencies. Healthcare costs have risen exponentially in India, and health insurance can serve as a financial tool that you might need in the future to cover the medical expenses of you and your family. 

In the 56th GST Council meeting on 3 September 2025, the Council decided to exempt individual life and health insurance premiums from GST, with effect from 22 September 2025. With these new advances in taxation on health insurance, substantial confusion has emerged among people. This is why you must understand the effects of GST for health insurance.

Overview of GST

Goods and Services Tax, implemented on July 1, 2017, is an indirect tax levied on the supply of goods and services. The purpose of GST is to replace the fragmented tax system in India, including central and state taxes like service tax, VAT, purchase tax, excise duty, among others. It is a tax that applies nationwide, subsuming other indirect taxes, facilitating the idea of One nation, One tax boosting economic growth. 

Applicability of GST on Health Insurance

When GST was implemented, health insurance premiums were not exempt from taxation. The premium payment was taxed with 18% GST, significantly raising the cost to unaffordable rates. This remained a serious concern for policyholders, including the insurers, with a drastic dip in medical insurance seekers in India. However, the GST council announced a tax exemption on health insurance effective from 22 September 2025, which made the premium payments more affordable. 

Furthermore, the policyholder can enjoy the benefits of paying just the base premium amount without any taxation, encouraging them to choose higher coverage for better protection. At the same time, GST for health insurance premiums differs depending on the specific policy chosen by the investor.

GST calculation on Health Insurance Premiums 

Before GST, health insurance premiums were taxed at a total of 15%, comprising 14% service tax plus 0.5% Swachh Bharat Cess and 0.5% Krishi Kalyan Cess. With the introduction of GST, health insurance premiums came under an 18% GST slab, replacing the earlier 15% service tax-based structure.

If the base premium is 200 rupees, under the earlier regime, you would pay 236 rupees in total, with 36 rupees being GST at 18%, whereas after the exemption, you pay only 200 rupees. With the reformed taxation rules, the policyholders can pay just the base premium with the exemption of taxes. 

Let us take a look at how GST for health insurance has been affected:

Components	Old Regime	New Regime
Base Premium	15000	15000
GST Rate	18%	0%
GST Amount	2700	0
Total Payable	17700	15000

Types of GST Applicable on Health Insurance:

Before the 2025 reforms, the GST regime taxed health insurance premiums in India. Authorities applied different types of GST depending on where policy holders purchased the policies.

1. Central GST (CGST):

When insurers sold a health or medical insurance policy within the same state, they allocated a portion of the tax to the Central Government as Central GST. They charged CGST alongside SGST for intrastate transactions, and as the CGST rate on health insurance was 9%, this resulted in it forming half of the total 18% GST that policyholders had to pay earlier.

2. State GST (SGST) or Union Territory GST (UTGST):

In the same intrastate sale, the other half of the tax went to the respective State or Union Territory Government as SGST or UTGST. This meant that when you bought a policy within your state, 9% went to the Centre (CGST) and 9% to the State (SGST), making the total tax rate 18%.

3. Integrated GST (IGST):

IGST was applied when a health insurance policy involved an interstate transaction. This means that the insurance provider and the policyholder were based in different states or union territories. IGST combined both CGST and SGST components, resulting in a total rate of 18%. The Central Government collected this amount and later distributed a portion of it to the state where the policyholder resided.

These divisions aimed to create a uniform tax structure under the “One Nation, One Tax” principle. After the 2025 exemption, GST on health insurance no longer applies to individual, family floater, senior citizen, and other eligible individual health insurance plans, while group and corporate health insurance policies continue to attract GST at 18% for millions across India. 

GST On Different Health Insurance Plans 

There are several health insurance plans in India. Here is a breakdown of these plans and how GST for health insurance is calculated for each.

Individual Health Insurance Plan 

An individual health insurance plan provides dedicated medical coverage for a single policyholder. Specifically, it serves as a financial safety net against unforeseen expenses arising from hospitalization and surgical interventions. Moreover, these benefits can extend to include daycare treatments and emergency medical transportation.

The premium of an individual health insurance plan varies depending on the policyholder’s age, medical history, gender, and other factors. It is a plan that is tailor specific to your needs and health conditions. With the reformed GST rules, these plans are exempt from tax. This means that, if you purchase a policy, you are required to pay only the base premium determined by the insurer.

Family Floater Plan 

A family floater plan is an insurance policy that allows you to get health coverage for your entire family. The plan covers the immediate family of the policyholder and, in some policies, dependent family members can also be included. 

The premium paid is a single sum, which is also exempt from GST as individual plans. The exemption of GST for health insurance makes the premium more affordable for middle-class families looking to invest in a good health insurance plan. 

Senior Citizen Health Plans 

Senior citizen health plans are designed to provide health insurance coverage to individuals above the age of 60 years. The plan prior to the new GST rules had 18% GST, acting as a heavy financial burden since seniors are more prone to health issues. 

As of 22 September 2025, the reformed rules exempt this plan from GST. For example, if a policyholder pays a base premium of 50,000 rupees for a senior citizen health plan, the insurer does not add any GST after this date. Therefore, the total payable remains 50,000 rupees. Consequently, this GST exemption for health insurance has made healthcare more affordable for senior citizens.

Group or Corporate Health Insurance plan

An employer buys a group health insurance plan for employees and may also extend coverage to their dependents, depending on the policy terms. Unlike individual health insurance, insurers still apply 18% GST to group and corporate health plans even after the 2025 exemption. This is because the relief covers only individual life and health insurance policies.

Insurers usually set the base premium based on the group’s age profile, health and claims history, and overall risk. They charge GST on these premiums at 9% CGST plus 9% SGST when the employer and insurer operate in the same state, and at 18% IGST when they operate in different states.

Government-Sponsored Schemes 

The government exempts public health insurance schemes such as Ayushman Bharat (PMJAY), the Employees’ State Insurance Scheme, the Aarogyasri Scheme, the CM’s Comprehensive Health Insurance Scheme, and other state insurance schemes from GST.

They have always remained exempt from GST since the schemes focus on providing healthcare coverage to the economically weaker section with zero or minimal cost. Furthermore, this status remains unchanged following the reformed regulations of GST for health insurance.

Effects of GST on Policyholders 

Many policy seekers consider GST on health insurance premiums an extra burden because medical costs in India are rising. Moreover, the base premium varies significantly, as insurers determine it based on factors such as the policyholder’s medical history, age, and other factors. The current exemption of GST from health insurance means that insured individuals or families can save a substantial amount annually compared to the premiums paid before the GST reforms. This benefits individuals and families significantly in their medical expenses. 

Advantages of GST Exemption on Health Insurance Premiums

The decision to exempt health insurance premiums from GST has come as a major relief for every policyholder in India. It doesn’t just make health insurance more affordable; it also encourages more people to protect their health and finances with adequate coverage. Here’s how the GST for health insurance reform benefits policyholders:

Reduced premium burden:

With the 18% GST removed, the overall cost of a health insurance plan immediately becomes more pocket-friendly. Families and individuals can now secure the same coverage at a substantially lower price.

Greater accessibility for all:

High premiums have always been a barrier, especially for middle- and lower-income groups. The GST exemption helps bridge this gap by making quality health insurance accessible to a larger section of society.

Encourages new policyholders:

The reduced cost encourages first-time buyers who were hesitant earlier to finally take the step towards securing their health, bringing India one step closer to becoming an insured nation.

Room for better coverage:

Since you save on taxes, you can now use those savings to choose plans with a higher sum insured or additional benefits. Consequently, you can ensure stronger financial protection during medical emergencies.

Support for India’s universal healthcare vision:

The move contributes directly to the national goal of achieving comprehensive health coverage for every citizen by 2047 and minimizing economic vulnerability caused by medical inflation.

Improved rural inclusion:

Lowered policy costs also enable insurance companies to reach deeper into semi-urban and rural markets. They make quality healthcare protection available where it is needed most.

How the GST Reform Affects Insurance Providers

While policyholders enjoy the advantages of GST exemption, the new tax structure also creates notable changes for insurance providers. Some are beneficial in the long term, while others bring short-term challenges. Here is how the exemption of GST for health insurance affects insurance companies: 

Loss of Input Tax Credit (ITC):

Under the new system, insurers can no longer claim ITC on expenses such as agent commissions, technology, or marketing services. This directly impacts operational costs and may slightly reduce margins.

Possible premium adjustments:

To balance the loss of ITC, some insurers might revise their base premium rates. However, competitive market dynamics will likely push most companies to absorb these costs partially and maintain attractive pricing.

Preference for a lower GST rate over full exemption:

Industry experts believe that a reduced GST rate could offer a better balance by letting insurers claim ITC while keeping premiums affordable for customers.

Operational and system updates:

Implementing the new tax framework requires insurers to adapt their pricing models, billing software, and compliance workflows. This transition might take some time, but it will ultimately simplify policy pricing structures in the long run.

Overall, while the reform benefits both sides of the market differently, it stands as a progressive step toward making health insurance in India more inclusive, transparent, and affordable.

Conclusion

The exception of GST for health insurance premiums marks a defining moment in India’s healthcare and financial landscape. By eliminating the additional 18% tax burden, the government has taken a critical step toward making healthcare protection more inclusive and affordable for every citizen. This reform not only lightens the financial load on policyholders but also encourages millions of first-time buyers to invest in their well-being.