Understanding the Impact of GST Exemption on Health Insurance Premiums in India

Jessica Henderson Jessica Henderson
Nov 28, 2025 - 18:41
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Health insurance is one of the most essential financial tools for individuals and families in India. It provides financial protection against unexpected medical expenses and ensures access to quality healthcare without draining one’s savings.

However, the rising cost of premiums and the addition of the Goods and Services Tax (GST) have led many policyholders to wonder whether health insurance could become more affordable if it were exempt from GST.

This blog examines the implications of GST exemption on health insurance, its potential impact on policyholders, and its significance for the broader Indian healthcare ecosystem.

What Is GST and How Does It Apply to Health Insurance?

The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. Since its implementation in 2017, the GST has replaced multiple indirect taxes, including service tax, VAT, and excise duty, thereby creating a unified tax structure.

When it comes to health insurance, the GST rate currently applicable is 18% on premiums. While healthcare services, such as hospitalisation, diagnosis, and medical treatments, are generally exempt from GST, insurance services are not.

Understanding GST Exemption on Health Insurance

A GST exemption on health insurance would mean that the 18% GST currently levied on premiums would be waived. This exemption could be partial (reducing the GST rate) or complete (removing it entirely).

Policymakers and industry experts believe that exempting health insurance from GST could make it more affordable and accessible, especially for middle-income families and senior citizens. If the exemption were implemented, the best health insurance plans in India could become significantly cheaper, encouraging more people to invest in coverage early and consistently.

 

How GST Exemption Could Impact Health Insurance Premiums

  1. Lower Premiums for Policyholders: Without the 18% GST, policyholders would directly benefit from a reduction in their premium outlay.

  2. Improved Affordability and Penetration: A GST exemption could encourage first-time buyers to purchase health insurance, thereby enhancing its affordability and penetration.

  3. Support for Senior Citizens: Older adults generally pay higher premiums due to increased health risks. Removing GST could ease their financial burden.

  4. Boost to Preventive Healthcare: As more people invest in health insurance, insurers may expand wellness and preventive care benefits.

  5. Encouragement for Long-Term Policies: Lower premiums could motivate individuals to opt for multi-year policies. This not only locks in premium rates but also ensures sustained coverage without the hassle of renewals.

Potential Challenges and Government Perspective

While the benefits of GST exemption on health insurance are clear, there are also fiscal and administrative challenges:

  • Revenue Impact: The government collects significant revenue through GST on financial services. A full exemption might reduce tax inflows, affecting budgetary allocations.

  • Policy Uniformity: Exempting one form of insurance could trigger demands for similar treatment across other products.

  • Implementation Complexity: Adjusting GST rates or introducing new exemptions would require coordination among multiple ministries and tax authorities, a process that can be time-consuming and resource-intensive.

Despite these challenges, experts argue that the long-term social and economic benefits of promoting health insurance outweigh short-term revenue losses.

What Policyholders Should Do Until Then

Until any change is officially implemented, individuals should focus on choosing the best health insurance plan that provides maximum coverage for their budget.

Some steps include:

  • Comparing premiums and benefits across insurers.

  • Opting for family floater or top-up plans to enhance coverage.

  • Taking advantage of tax benefits under Section 80D of the Income Tax Act, which allows deductions for premiums paid.

  • Exploring wellness-linked discounts or long-term premium savings offered by insurers.

Conclusion

The conversation around GST exemption on health insurance highlights an important issue: making healthcare protection affordable and accessible to all in India. While the exemption has not yet been approved, its potential impact on lowering premiums and improving accessibility is undeniable.

For now, individuals should focus on securing the best health insurance that suits their needs, ensuring financial security against unforeseen medical expenses. A proactive approach to health coverage not only provides peace of mind but also contributes to a more resilient healthcare ecosystem in India.