The Goods and Services Tax (GST) on health and insurance products, which was earlier set at 18 per cent, has now been reduced to zero. This move is part of a significant revamp of the GST rate structure, announced by Finance Minister Nirmala Sitharaman in a late-night press conference. The reform aims to make health coverage more affordable for the public, encouraging wider adoption of insurance policies among households across India.
Finance Minister Sitharaman stated that the decision of the GST Council was taken with complete consensus. All state finance ministers supported the rate rationalisation, recognising its potential to increase insurance penetration. By eliminating GST on premiums, the government hopes to make healthcare coverage a priority purchase for more families, particularly those from middle-income segments.
Lower premiums are expected to increase the demand for health insurance products. This improvement in affordability could also strengthen financial inclusion by enabling more people to secure health protection. However, industry experts note that insurance providers may face short-term financial pressures due to the time required for policy repricing.
In the retail health segment, combined ratios (CR) for insurers may be impacted by around 3-6 per cent. This is because the repricing of existing policy renewals could take 12 to 18 months, leading to a temporary mismatch in costs and revenues. Nevertheless, insurers are expected to adjust over time as demand growth offsets initial losses.
According to HSBC’s analysis, the complete GST exemption could lower health insurance premiums by approximately 15 per cent. This reduction would make coverage more accessible to millions, potentially increasing overall policy uptake in the coming years. Analysts believe the long-term benefits for citizens could outweigh the initial revenue loss for the government.
However, the exemption is expected to create an annual revenue shortfall for the government, estimated at USD 1.2 to 1.4 billion. Policymakers argue that this loss should be viewed as an investment in public welfare, as improved health coverage can reduce out-of-pocket medical expenses and enhance the nation’s overall healthcare security
