GST impact on Health insurance

By Vamsee Krishna in Health Insurance in India

Jul 6

GST is one of the biggest tax reforms since Independence and is expected to reshape India’s business landscape by making the country a lucrative destination to do business with and would work towards bringing down barriers between the states.  All the state and central taxes that are levied on goods and services such as excise duty, VAT, service tax, luxury tax, entertainment tax, etc. will be incorporated within a single tax comprising two components, i.e. state GST and central GST. Each of these taxes will be divided uniformly to form the GST rate. The anticipated rate of GST is likely to be 18 %. In the present non-GST rule, indirect taxes on goods vary between 27 to 32% whereas those on services stand at 15 %.

There is a lot of scope for health insurance in the country like India where the coverage under health insurance is only 18 percentage in urban and 14 percent in rural India in 2016. The GST rate on the insurance sector is 18 percent as against 15 percent service tax in the pre GST era. With an increase in GST rates to 18% from the earlier 15%, insurance sector products and services have become more expensive now. The impact of GST on insurance, for instance, increased the premiums for policies. Therefore, existing and new policyholders will see a hike of 3% in their premium amounts.

So, for example, a premium of Rs10000 will see an increase of Rs 300. Although healthcare has been exempted from GST, some services and products became costlier. Medicines and disposables fall under 12% tax slab, however, the cost of diagnostic services, surgery and operations increased by a substantial amount. An insurance policy will provide a highly beneficial cover against these raised costs.

GST though has increased premiums will benefit the policyholder by reducing the burden on claim amounts as there has been substantial rise in the cost of diagnostic services and operations etc.  What is important to be noted here is that premium is not the only factor based on which one should purchase any kind of policy. The essential aspect of any type of insurance is the protection that it offers to the people against unprecedented events and the varied services that the insurer provides in terms of policy tenure and claims. So with GST, insurers may make their products better by enhancing the quality of services and the customer buying experience because of the existing competition in the market at present.

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