Centre Considers Lowering GST to 12% for Health Insurance Premiums, Aiming to Expand Coverage

The Centre is contemplating a reduction in the Goods and Services Tax (GST) rate on health insurance premiums from the current 18% to 12%, particularly for premiums up to Rs 30,000. This move aims to make health insurance more affordable and accessible, potentially widening coverage across the population.

Currently, with the prevailing market rates, a health insurance premium of up to Rs 30,000 could secure coverage of approximately Rs 10 lakh per annum for a family of four members. The proposed reduction in the GST tax rate could result in decreased premium rates or the introduction of additional health coverage options tailored to the needs of individuals and families.

An official stated that this proposal, among others, is pending and may be discussed in the GST Council following the general elections.

The initiative aligns with the recommendations of the Parliamentary Standing Committee on Finance, chaired by BJP MP Jayant Sinha, which emphasized the need to rationalize the GST rate on insurance products, especially health and term insurance. The committee suggested lowering GST rates on health insurance products, particularly for retail policies targeting senior citizens and microinsurance policies, along with term policies.

Since the implementation of GST, individuals purchasing health insurance policies have been subject to an 18% GST rate, marking a 3% increase compared to the previous Service Tax rate of 15%, including applicable cess.

Furthermore, the report underscores the importance of extending health coverage to vulnerable populations, as highlighted by the Niti Aayog’s recommendation to extend the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) scheme to the ‘missing middle’ on a paid basis. PMJAY currently provides free health coverage of up to Rs 5 lakh per year to 107 million economically disadvantaged households, constituting 40% of the population.

The potential reduction in GST on health insurance premiums reflects a broader effort to enhance healthcare accessibility and affordability, aiming to mitigate financial risks associated with medical expenses and promote comprehensive health coverage across India’s diverse population.