How GST Will Impact On Your Health Insurance Premium
In 2017, the government of India introduced the Goods and Service Tax (GST) and took the economic structure of the country to the next level. This astonishing move has removed the gushing effects of multifarious taxes that existed previously. GST is applicable across the country on various goods and services including health insurance.
GST charge on health insurance plans is 18%. Previously, the rate of service tax on insurance was 15%. This consists of the basic service tax of 14%, Swatch Bharat Cess 0.5% and Krishi kalian Cess 0.5%.
What is GST?
GST is a single indirect tax which applies to the consumption of numerous items (household items, food, electronics, textile products, etc.) and services (travel, real estate, insurance, etc.). Under GST, all indirect taxes like service tax, excise duty, VAT, etc. are counted. The prime objective of GST is to make business processes smoother and user-friendly. Four types of GST are there.
- Central GST (CGST): A part of your GST payable per transaction goes to the central government
- State GST (SGST): If the transaction happens within a particular state, the part of GST goes to the state government
- Integrated GST (IGST): GST is applied to inter-state goods if the transaction takes place between two states or union territories
- Union Territory GST (UGST): This type of GST is applied if the transactions happen within union territories
What is the GST rate for the Health Care services?
Earlier a service tax of 15% was applied to health insurance; now health insurance GST rate is 18%. So, there is a sharp increase of 3%.
The new GST rule is applied to customers who want to purchase new health insurance policies or renew their present policies. This tax hike impacts health and other insurance products in a healthy way. The premium structure has changed astonishingly due to it.
If you purchased a health insurance policy of the sum insured of Rs. 8 lakhs, then your premium amount will be Rs. 20,000 per year. Let’s take a look at the GST on health insurance premiums.
If you add 15% service tax, then your premium amount would be Rs. 23000 per year.
Your premium amount will be Rs. 23,600 (@ 18% GST).
This means, now you need to pay Rs. 600 extra for the same health policy.
Pros of GST on Health Insurance
GST has many positive aspects on the health insurance sector. Many new windows have opened after this implementation of GST.
1. Encourages the Customer
Though health insurance premiums have increased to some extent, it encourages customers to purchase health insurance policies to secure their health. It increases competition in the field of the health insurance sector.
2. High Competition Among Health Insurers
Nowadays, the premiums have risen due to this higher tax rate; hence insurance providers are getting worried about their corroding customer base. Due to this increased premium, many customers are reluctant or worried regarding their health policies. Now, novice customers are not willing to purchase insurance and this will adversely affect the business of insurers. Insurance companies are vying with each other.
3. Competitive Costs and Offers
Many have launched new health insurance policies at a very affordable rate. The costs of some of the policies are even lower than earlier. Along with the price advantage, the customers are getting a hassle-free and convenient policy purchase process as well as the claim initiation process. The insurers are trying to reduce the non-tax barrier for their buyers. Many companies are truncating the costs associated with issuing policies. They are also using this opportunity on their behalf. In a nutshell, GST has changed the entire process of insurance and makes it hassle-free and less cumbersome for the customers.
Cons of GST on Health Insurance
Though GST has a plethora of advantages on health insurance, certain disadvantages are there that you can’t ignore about this taxation process.
1. GST Applicable on Existing Policyholders too
The new GST rule will not only be applied to novice customers but also the existing policyholders. Now, these policyholders also need to pay the increased premium amount for the policies that they bought earlier.
2. No Input Tax Credit Facilities
Since insurance is considered a service under the GST system, hence no input tax credit facilities are available for individual policyholders. Moreover, the tax advantages for group policyholders will also disappear.
3. Higher Premium Amount
Before the GST application, the pure risk term insurance premiums were taxed at 15%. Due to this GST introduction, the premiums of the investment component of the Unit-Linked Insurance Plans and Endowment Plans were subjected to a concessional rate of service tax. For the initial premium, the concessional rate was 3.75%, and for renewal premiums, the rate was 1.875%. After the introduction of the GST system (@ 18%), the first-year premiums will be 4.50% (for novice policy buyers) and the renewal premiums will be 2.25%.
4. Higher ULIP Tax Charges
The ULIP charges that were previously taxed at 15% will now be taxed at 18%. Moreover, the 1.5% service tax (compulsory on single premium annuity policies) has changed to 1.8%.
5. No concession for Endowment or ULIP Policy
In the new GST regime, no concession is available for Endowment and ULIP policy. But numerous requests have been made to the Government to offer a concession to the ULIP and Endowment policy buyers. All non-life insurance policies like health policies, home insurance, motor insurance, etc. will be affected by the revised rate.
The above article gave you an adequate idea regarding the change in the tax structure after the implementation of GST. Though the cost of health insurance has increased, it will certainly offer an array of benefits to the buyers. Moreover, due to the steep competition, the companies are reducing the prices of their policies to entice prospective buyers.
While purchasing a health insurance policy, you should also consider your requirements apart from the premiums. Check the coverage, add-on benefits, the claim settlement ratio, the waiting period, etc. before making a final decision. The GST on health insurance is another pivotal parameter that you also weigh before purchasing a health policy.