GST on Health Insurance

Why in News?

Insurance premiums for health and life policies have increased this year, and with the 18% GST, insurance has become less affordable for many people.

What are the importance of health insurance?

India is the fifth largest life insurance market in the world's emerging insurance markets, growing at a rate of 32-34% each year. The Insurance Regulatory and Development Authority of India (IRDAI) is the regulatory body that oversees and regulates the insurance sector in India.

• Health insurance - An assurance which provides immediate financial help in case when any medical emergency arises.
• Quality health care- Insured individuals often have access to a wide network of hospitals and healthcare providers, ensuring quality care.
• Improved diagnosis- Health insurance plans often cover preventive services, such as regular check-ups and screenings, leading to early detection and treatment of diseases.
• Timely Treatment- Health insurance ensures that individuals can access timely medical care without worrying about immediate payment, leading to better health outcomes.
• Coverage of Medical Costs- Health insurance helps cover the high costs of medical treatments, surgeries, and hospital stays, reducing the financial burden on individuals and families.
• Reduces Out-of-Pocket Expenses- With health insurance, a significant portion of medical expenses are covered by the insurer, minimizing the amount paid directly by the insured.
• Reduction in Poverty- By reducing out-of-pocket medical expenses, health insurance helps prevent families from falling into poverty due to medical emergencies.

What are the implication of GST on Insurance?

• Pre-GST Taxes- Life insurance premiums were subject to 15% service taxes (Basic Service Tax, Swachh Bharat cess, Krishi Kalyan cess).
• Increase in Tax Rate- Transition from 15% to 18% with the introduction of GST in 2017.
• Current GST Rate- 18% on health and life insurance policies.

• Impact of GST- Increased premiums due to the inclusion of service tax.

What lies ahead?

• Reduce GST on essential insurance products- The government could consider reducing the GST rates on essential insurance products like health and life insurance.
• Keep uniform GST rates- Establishing a more uniform GST rate across different types of insurance products could simplify the tax structure and reduce administrative burdens.
• Streamline Input tax credit (ITC) claims- Simplifying the process for claiming input tax credits for insurance companies can help in reducing the overall tax burden.
• Cross-Sector coordination- Facilitate better coordination between the insurance sector and other sectors to streamline ITC claims and minimize disputes.
• Policyholder education- Launch awareness campaigns to educate policyholders about the importance of insurance and the impact of GST on premiums that could help in maintaining and potentially increasing insurance penetration.
• Regulatory collaboration - Encourage collaboration between the GST Council, insurance regulatory bodies, and industry stakeholders to address sector-specific issues and streamline GST processes.
• Adopt advanced IT solutions- Leverage technology to simplify GST compliance, such as automated GST filing systems and real-time tax reconciliation tools.

References

1. The Indian Express | GST on health insurance
2. The Hindu | Implications of GST on health