What is GST?
The full form of GST is Goods and Service Tax. This is a typical indirect tax charged while consuming several household goods and services like transportation, food, electrical and electronic goods, textile, insurance, real estate, etc. Under GST, all indirect taxes like VAT, excise duty, and service tax get counted. The principal objective of GST is to prepare the overall business process user-friendlier and smoother.
Types of GST
There are four kinds of GST:
- Central GST (CGST): A section of GST you pay for each transaction directly goes to the central government.
- State GST (SGST): As the name suggests, in case of any transaction that happens within the boundaries of a particular state, a part of the payable GST is received by the respective state government.
- Integrated GST (IGST): This implies that the GST is applied in the case of goods exchanged between two states or union territories.
- Union Territory GST (UGST): As the name proposes, UGST implies the GST applicable on the transaction that has occurred within the boundaries of union territories.
What is the Rate of GST in the Case of Healthcare Services?
Previously, a service tax of no more than 15% was charged to every health insurance. But, with the implementation of GST, the rate of taxation currently stands at 18%. So, we can well understand that there has been a steep hike of 3% in one go.
These revised GST norms apply to every customer who desires to buy new health insurance plans or wishes for health insurance renewal. This new tax hike greatly affects insurance products, including health insurance, in a more affirmative manner. The structure of health insurance premiums has undergone a sea change because of the implementation of GST.
We will cite an example to make the matter clear.
Suppose you buy health insurance worth INR 8 lakhs, then the premium value stands at INR 20,000 annually. Here comes GST into the picture.
1. Before GST
As per the previous norm, a 15% service tax was added. This made the premium value worth INR 23,000 each year.
2. After GST
Calculating the same value in the light of 18% GST, the premium value amounts to INR 23,600, showing a steep hike of straight INR 600 for the same health plan.
How Does GST Affect the Health Insurance Sector?
Advantages of GST on Health Insurance
The above calculation might pose a detrimental thought and approach toward GST for the average mind. However, GST has several positive aspects too. After the implementation of GST, new vistas have opened, creating new horizons:
1. Customer Encouragement
Although the premium value has increased to a certain extent, the average person is more interested in buying new health plans to ensure better security of their health and their family’s health. It has increased healthy competition in the health insurance sector.
Moreover, since the outbreak of the Covid-19 pandemic, this trend of buying health plans has intensified even further.
2. High and Tough Competition Among the Health Insurance Companies
Because of the higher tax rate, the premium value has increased to a certain extent. This has added a massive tension among the health insurance providers of losing their existing customer base. Because of such a heavy taxation rate, a lot of potential customers are giving a second thought regarding the purchase of a new health plan.
Moreover, most novice customers have turned reluctant to buy health plans, thus putting the insurance companies in a problematic situation. This has significantly increased the tough competitive environment in the health insurance sector.
3. Competitive Offers and Costs
Several insurance companies have launched various types of health insurance plans at quite reasonable rates to capture the market. Certain new plans are even lower than the previous rates.
Apart from such a competitive price advantage, new customers can also access a more convenient procedure for plan purchasing and the health insurance claim settlement process. Several insurance companies have begun to truncate their costs related to the issuance of plans. They are even trying to utilise this opportunity on behalf of the customers, making it far less cumbersome and easier.
Disadvantages of GST on Health Insurance
Although GST offers a host of healthy advantages to the health insurance sector, it also comes with its own disadvantages.
1. Application of GST on Existing Policyholders too
The new GST norm is not only applicable to the new policy buyers only, but it is equally applied to the existing policyholders too. This has made the older policyholders pay an increased premium rate for those plans they purchased before the implementation of GST.
2. No Input Tax Credit Benefits
As the health insurance sector is regarded as a service under the GST system, the policyholders can avail of no input tax credit benefits. Moreover, group health insurance plans will also cease to exist tax advantages.
3. Increased Premium Amount
Because of the GST implementation, the premium values for certain investment components like endowment plans and ULIPs were subjected to a concessional service tax. The initial premium rate was 3.75%, while the renewal premium was 1.875%. Since the introduction of GST, the initial premium rate will be 4.75%, and for renewal, it will be 2.25%.
Conclusion
Considering the current lifestyle and the skyrocketing medical costs, possessing befitting health insurance has become an imperative factor. It is very important to understand that buying a health plan with GST offers you protective coverage. Moreover, the increased competition has led to the availability of several health plans at affordable rates.
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