GST 2.0: Individual Health Insurance Premiums To Be GST-Free From Today

Union Finance Minister Nirmala Sitharaman announced a major reform under GST 2.0 at the 56th GST Council meeting on September 3. Effective today, individual health insurance premiums will be completely exempt from GST. This is aimed at making healthcare and insurance more affordable for the nation.

What This Means For Your Premiums

Previously, all health insurance policies attracted 18 per cent GST, increasing the total cost of premiums. For example, a policy with an annual premium of Rs 15,000 would cost Rs 17,700 including GST. Under GST 2.0, the same premium will cost Rs 15,000, saving Rs 2,700 annually.

Benefits For Policyholders

• Immediate savings: Annual premiums drop nearly 18 per cent.
• Easier budgeting: Health insurance becomes simpler to include in yearly financial planning.
• Upgrade options: Savings can be used for higher coverage or add-ons.
• Senior citizens gain more: Higher premiums for older policyholders mean greater relief.

Scope Of The GST Exemption

• Individual health insurance plans, family floaters, senior citizen policies, and top-up or super top-up plans purchased after September 22 are exempt.
• Employer-provided group insurance is not covered.

Impact On Insurers

While policyholders save on GST, insurers will lose the ability to claim Input Tax Credit (ITC) on GST paid for operational expenses like agent commissions, rent, software, and brokerages. This may increase insurers' costs, which could eventually reflect in slightly higher base premiums at renewal.

For instance, if a policy costs Rs 20,000 per year:

• Base premium: Rs 16,950
• GST: Rs 3,050
• Total before GST 2.0: Rs 20,000.

With ITC loss, insurers may absorb some costs, meaning net savings for policyholders may range from a modest 3-6 per cent, depending on the plan type.

Regulatory Framework

Insurers may adjust premiums only at policy renewal, as per the Insurance Regulatory and Development Authority of India (IRDAI) Product Regulations, 2024, and the Health Insurance Master Circular. Arbitrary mid-term hikes are not permitted.