Opposition parliamentarians in India have recently urged Finance Minister Nirmala Sitharaman to consider eliminating the Goods and Services Tax (GST) on life and health insurance policies. In response, Sitharaman highlighted that taxes on medical insurance existed before the GST was introduced and have been a longstanding issue.

She noted, "I want to raise two important points - tax has been there on medical insurance even before the introduction of GST. There was already a pre-GST tax on medical insurance. This is not a new issue; it was already present in all the states. Those protesting here... did they discuss the removal of this tax in their states?"

The debate intensified after Transport Minister Nitin Gadkari's letter advocating the removal of GST on health insurance became public, despite Sitharaman's claim that it was not intended for public release.

In a country grappling with significant income inequality and a need for improved healthcare infrastructure, many Indians are questioning why a tax is levied on a basic necessity like healthcare. The insurance penetration rate in India remains relatively low compared to other countries, and the additional tax burden complicates access to medical insurance.

A report from Niti Aayog reveals that around 30 percent of the Indian population, approximately 40 crore people, still lack any form of financial protection for their health.

Affordability Challenges in Health Insurance

Parthanil Ghosh, Director and Chief Business Officer at HDFC ERGO General Insurance, explained that while GST has simplified the tax structure since its implementation in 2017, it has also made health insurance premiums more expensive.

"Although the single rate has simplified and clarified the tax structure for policyholders, the cost of health insurance has increased due to the GST," Ghosh said. However, he noted a positive aspect: "With Input Tax Credit available on GST paid by insurers, the net impact of GST is lower compared to the previous Service Tax for some non-life insurance products."

Ghosh illustrated this with an example: "An insurance policy with a premium of Rs 15,000 will incur an additional cost of Rs 2,700 (Rs 15,000 * 18%). Thanks to the input tax credit, these costs are not fully passed onto policyholders."

Shilpa Arora, COO and co-founder of Insurance Samadhan, argued that the 18% GST on premiums is excessive. "GST of 18% is not justified on premiums. Insurance products are meant to protect families from financial losses due to unforeseen events. With the Insurance Regulatory and Development Authority of India (IRDAI) aiming for universal insurance coverage by 2047, the government should lower the GST to make premiums more affordable," Arora stated.

As the debate continues, the issue of GST on health insurance remains a focal point of discussion, reflecting broader concerns about healthcare affordability and access in India.

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