• This article outlines a framework for reduction in GST on medical insurance premium classifying those insured into below and above the age of 65. Lastly, it gives possible benefits of this reduction.

I got a surprise when my medical insurance premium renewal notice showed a 20% increase as compared to the previous year. To that add GST of 18% and I will be paying additional amount of app Rs 10,000/ this year. (The Insurance Regulator IRDAI issued a circular in January 2025 that premiums for senior citizen should not increase by more than 10%. But my insurer company had issued notice for increase in premium in the last quarter of 2024). 

On inquiring my agent said that increase in premium was due to the high expenses incurred, against claims made, by the insurance company. What hurt was the 18% GST on premium (app Rs 9,000/ this year).

After all, medical insurance is not a luxury or high end consumer product but an essential in today’s times. It is an insurance against falling seriously sick and resultant medical costs that seem to be ever increasing. 

I recalled that the 55th GST Council Meet deferred the decision to reduce GST rate on health insurance premium. It was suggested that GST on policies up to Rs 5 lakhs for individuals be exempt or reduce tax rate to 5%. Reference

Whilst appreciating the revenue concerns of states, this article suggests a framework for reducing GST on medical insurance premium.

1. For all individuals where policy amount (principal only) does not exceed Rs 5 lakhs, GST rate to be NIL. 

2. For Senior Citizens i.e. above the age of 65 (as against 60 assumed elsewhere) GST rate to be NIL in all cases for individuals when the policy amount (principal only) does not exceed Rs 10 lakhs.

Since no GST is levied, the insurance company cannot avail corresponding GST Input credit. Industry sources state that when the government sets 5% GST rates, they make Input credit ineligible which becomes an execution nightmare for the insurance company as they will have to prorate GST and anyway 5% loss of Input credit will offset the benefit and nothing will get passed on.

A suggestion - instead of a threshold limit like Rs 5 lakhs proposed, can the threshold be based on the amount of premium paid say Rs 15,000-Rs 20,000/ per annum meaning any premium paid upto these amounts would not attract GST. Can someone explain how this would work in the GST framework because GST is a tax on a product or service. Will this complicate matters and open the floodgates to more such requests. A 15-20k exemption is akin to deduction under the Income-Tax Act.      

The insurance company must file with the Income-tax department annually a list of insured senior citizens who have availed the additional Rs 5 lakhs benefit giving their PAN or AADHAR card numbers.

In case the medical policy covers husband and wife, the age of the oldest member shall be considered for determining senior citizen benefit.

The above framework will be a big relief to citizens and might not cause a significant revenue loss to states.

This reduction would help increase penetration of medical insurance, make health care affordable and benefit the economy as a whole. If the number of insured go up the fixed cost incurred by insurance companies would be spread over larger number of customers resulting in lower per capita fixed cost loading. So also for hospitals, larger number of insured patients means lower fixed cost and better realizations.

The GST Council can annually, review the fall in premium revenue and weigh it against gains for citizens and the economy. Rates may be increased or decreased accordingly.

GST on life insurance premiums is not covered now. It could be looked at subsequently depending on how this citizen friendly reform pans out.

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