The government has taken a big step to bring insurance and health services within the reach of the common man. The government has completely abolished the GST (Goods and Services Tax) on personal insurance, health insurance and life saving medicines. This decision was taken on Wednesday in the 56th GST Council meeting, which will come into effect from September 22.
Prime Minister Narendra Modi had already indicated relief in GST. In his address from the Red Fort on Independence Day on August 15, he had said, “This year the countrymen are going to get a big gift on Diwali. We are bringing the next phase i.e. next generation GST reform.” This announcement has come in the form of GST exemption on health services and insurance premium. This decision is expected to provide direct financial relief to crores of Indian families. How cheap will health insurance be, will everyone be able to avail of it… are some of the questions whose answers you would like to know.
Earlier, one had to pay up to 18 percent GST on the premium of the insurance policy. Now this tax will not be levied, which will reduce the total cost of the premium. Tax expert DK Mishra explains by giving an example, “If a 30-year-old person today takes a health insurance of Rs 10 lakh for himself, then he has to spend about 15 thousand rupees annually.” He says, “After the abolition of 18 percent GST, he will now save up to Rs 2700 annually.”
Family floater insurance is a type of health insurance plan, in which a single policy is taken for the entire family. If a person takes a family floater, then he has to pay less premium as compared to taking separate policies. The advantage of this is that the insurance amount can be used for the treatment of any member of the family.
For example, if a 30-year-old person takes a family floater of Rs 20 lakh. If he includes his parents and wife in this, then he has to pay a premium of about 70 thousand rupees annually. But now a person can save up to 12,600 rupees annually by taking this plan. On the other hand, if a cover of 50 lakh rupees is taken in family floater, then its premium reaches one lakh rupees annually. In such a situation, the person will directly save up to 18 thousand rupees.
Earlier GST had to be paid on life insurance policies. Now this expense will end. That means lakhs of rupees will be saved by paying premium for a long time. Earlier if a person used to take a life insurance policy with a premium of Rs 20,000, then 18 percent i.e. Rs 3600 GST was levied on it. Now this tax will be completely removed.
Policies for the elderly are usually expensive. The tax burden on them is high. Experts say that now with the removal of tax, their insurance policy will become cheaper by 15 to 20 percent.
According to a report by HSBC, this can make the premiums of health and life insurance cheaper by about 15 percent. Tax expert DK Mishra says, “The government has instructed insurance companies that the GST amount they are waiving should reach the people. The companies have also assured the government that we will give the benefit to the people and will not increase the premium.”
Some experts believe that due to the removal of GST, insurance companies will not get input tax credit (ITC), due to which the cost of premium can increase by three to five percent. When insurance companies run their business, they have to pay GST on many types of services, such as office rent, IT services, call center, advertising and others. Companies can claim this GST as input tax credit. Companies adjust the GST paid by them in the GST they get on policy premium, but now this will not be possible. This will increase the expenses of the companies.
The GST Council has completely abolished the 12 percent GST imposed on 33 life saving medicines. Apart from this, three major medicines for cancer and rare diseases will now be completely tax free. Earlier, 5 percent GST was levied on them.
Except these, GST on all other medicines has been reduced from 12 percent to 5 percent. Apart from medicines, many equipment used in medical, surgery, dental treatment will also be charged 5 percent GST instead of 18 percent.
According to the National Center for Disease Information and Research (NCDIR), an estimated 14 lakh 61 thousand 427 new cancer cases were registered in India in the year 2022. NCDIR estimates that by 2025, there may be an increase of about 12.8 percent in new cases of cancer as compared to 2020.
For example, daratumumab medicine is also included in the 33 life-saving medicines. This medicine is used in bone cancer. In India, the price of 400 mg vial of this medicine is around 65 thousand rupees. With 12 percent GST, a person has to pay 7800 rupees more. If the patient takes four vials in a month, then now there will be a saving of about 30 thousand rupees compared to earlier.
According to the Ministry of Finance, in the year 2019-20, the government had collected GST of 2,101 crores on health and life insurance services. According to the ministry, it had increased to 16 thousand 398 crores in the year 2023-24. In the Lok Sabha, Minister of State for Finance Pankaj Chaudhary had told that GST of Rs 9 thousand 747 crore was collected in the year 2023-24 only from health insurance premium and re-insurance premium. This means that by eliminating GST on life insurance and health insurance, the Government of India will suffer a loss of more than 10 thousand crores annually.
Experts believe that removing GST on health insurance can reduce per capita health expenditure in India. According to the National Health Accounts, in 2021-22, Rs 6,602 was spent annually on the health of a person in India. In the year 2013-14, this expenditure was only Rs 3,638. In about 10 years, health expenditure has increased by 82 percent. This Rs 6,602 includes government expenditure as well as money taken out of people’s pockets. In simple language, half of this amount is spent by the government or insurance companies and the rest has to be borne by the families themselves.
This means that every person has to spend about Rs 2600 on health annually. Tax expert DK Mishra says, “If there is no GST, the cost of premium will be less and more people will be encouraged to take health insurance.” According to experts, removal of GST can reduce health expenditure by up to ten percent.
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