What is the Effective Date of The New GST on Health Insurance?

The Goods and Services Tax (GST) regime in India has undergone significant reforms, with one of the most impactful changes being the complete exemption of GST on health insurance premiums. This landmark decision, announced after the 56th GST Council meeting, is set to reshape the affordability and accessibility of health insurance for millions of Indians. With healthcare costs rising steadily, this reform addresses a critical barrier to insurance penetration, making it easier for individuals and families to secure financial protection against medical emergencies. This blog provides a detailed overview of the GST on health insurance, its effective date, its implications, and how it lowers the health insurance GST rate for the common man.

Overview of GST For Health Insurance

The GST, introduced in 2017, replaced multiple indirect taxes with a unified tax structure, streamlining compliance for businesses and consumers. However, the 18% GST levied on health insurance premiums significantly increased the cost of policies, making them less affordable for many households. 

The same GST rate was applied to all health insurance plans without separating essential services from optional ones, which made insurance less affordable for many people.

Types of GST on Health Insurance

The following types of GST are levied on health insurance:

• CGST or Central GST- Central GST on health insurance is levied for the intrastate sale of a health insurance policy or the sale of a medical insurance policy within the state. It is a component of GST charged along with the SGST or the state GST and collected by the Centre. The Central GST on health insurance is 9%.
• SGST or State GST and Union Territory GST or UTGST- State GST or Union Territory GST on health insurance is levied for the intrastate sale of a health insurance policy or medical insurance policy within the state or UT. It is a component of GST charged along with the CGST or the Central GST and collected by the respective consuming state or UT, as the case may be. The State or UT GST on health insurance is 9%.
• IGST or Integrated GST- Integrated GST on health insurance is levied for the interstate sale of a health insurance policy or sale of a medical insurance policy by the insurance provider in one state or UT to the insurance holder located in another state or UT. It is usually a cumulative total of rates charged for CGST, SGST/UTGST and is collected by the Centre. The Centre will distribute a portion of it to the consuming state and retain the rest. The Integrated GST on health insurance is 18%. Rephrase this entirely in simple to understand langauge

Evolution of GST Rates on Health Insurance

The taxation of health insurance in India has undergone a significant transformation, moving from a multi-tiered service tax to a standard GST rate and finally toward strategic exemptions to improve public health access.

• Prior to GST, health insurance premiums were taxed at 15%, which included the Basic Service Tax, Swachh Bharat Cess, and Krishi Kalyan Cess.
• The implementation of GST raised this tax rate to 18%, directly increasing the total premium costs for consumers.
• This tax hike placed a heavy financial burden on middle-income families and senior citizens who rely on consistent coverage.
• Higher costs have been a major factor in India’s low insurance penetration, which stands at roughly 4% of GDP compared to the global average of 6.8%.
• Update: As of September 22, 2025, the GST Council has exempted individual and senior citizen health insurance premiums from GST, reducing the rate from 18% to 0% to improve affordability.

The Need for Reform

The high GST rate on health insurance plans was a long-standing concern, frequently debated in Parliament and by industry stakeholders. Critics argued that taxing health insurance premiums at 18% treated a necessity as a luxury, discouraging many from purchasing or renewing policies. The GST Council's decision to address this issue reflects a commitment to enhancing financial inclusion and supporting the "Insurance for All by 2047" vision.

The New GST Exemption on Health Insurance

Following extensive deliberations, the GST Council announced a transformative reform during its 56th meeting on 3rd September 2025. This section explores the details of the exemption and its effective date.

Key Announcement from the 56th GST Council Meeting

Union Finance Minister Nirmala Sitharaman announced that all individual health insurance policies, including family floater and senior citizen plans, along with their reinsurance, will be fully exempt from GST. This decision eliminates the 18% tax previously applied, making health insurance more affordable.

Effective Date of GST Exemption

The GST on health insurance effective date is 22nd September 2025, coinciding with the first day of Navratri. From this date, all premium payments for individual health insurance policies will be GST-free, reducing the cost of coverage by approximately 18%.

This table illustrates the cost-saving impact of the GST exemption, highlighting a significant reduction in premiums for policyholders.

Scope of the Exemption

The GST exemption applies to all individual health insurance policies, including:

• Individual plans
• Family floater policies
• Senior citizen health insurance
• Critical illness plans

Group insurance policies are not explicitly included in the exemption, and policyholders should verify with insurers or refer to Central Board of Indirect Taxes and Customs (CBIC) notifications for clarity.

Impact of GST Exemption on the Health Insurance Sector

The removal of GST on health insurance premiums is poised to have far-reaching effects on both consumers and the insurance industry. This section examines these impacts in detail.

Enhanced Affordability for Policyholders

By eliminating the 18% health insurance GST rate will decrease significantly, making health insurance more accessible. For example, a policy with a base premium of INR 20,000 previously cost INR 23,600 after GST. Post-exemption, policyholders will pay only the base premium, saving INR 3,600 annually. This reduction could encourage first-time buyers and motivate existing policyholders to opt for higher coverage or additional riders.

Boost to Insurance Penetration

India's low insurance penetration has been a persistent challenge, with high premiums acting as a deterrent. The GST exemption addresses this barrier, aligning with the government's goal of increasing insurance coverage. Industry experts predict a rise in demand, particularly among lower-middle-income groups and senior citizens, who face steep premiums due to age-related risks. 

Challenges for Insurers

While the exemption benefits consumers, insurers face challenges due to the loss of Input Tax Credit (ITC). Previously, insurers could claim ITC on GST paid for operational expenses like IT systems, commissions, and medical network services. Without ITC, operational costs may rise, potentially offsetting some of the premium reductions. Industry estimates suggest that premium cuts may range between 10-15% instead of the full 18%, as insurers adjust pricing to account for increased costs.

Economic and Social Implications

The GST exemption is not merely a financial adjustment but a step towards inclusive growth. Reducing out-of-pocket healthcare expenses, it alleviates financial stress for households and supports the broader goal of strengthening India's healthcare ecosystem. Lower premiums could also attract younger policyholders, improving the risk pool and ensuring long-term stability for insurers.

Implementation and Considerations

The transition to a GST-free regime for health insurance requires careful implementation to ensure benefits reach consumers. This section outlines key considerations. 

Timeline and Policy Adjustments

The GST on health insurance, effective date of 22nd September 2025, applies to all premium payments made on or after this date, including renewals. Policies purchased or renewed before this date will still incur 18% GST until the next renewal cycle. Policyholders planning to buy new policies may benefit from waiting until the exemption takes effect, though urgent coverage needs should not be delayed for minor savings.

Role of Insurers and Regulators

Insurers are expected to pass on the benefits of the GST exemption to consumers, with the government's anti-profiteering authority monitoring compliance. The Insurance Regulatory and Development Authority of India (IRDAI) and CBIC will issue notifications to clarify exemptions and ensure transparency in pricing. 

Consumer Awareness

Policyholders should stay informed about the GST on health insurance effective date and verify with insurers whether their policies qualify for the exemption. Checking policy documents and consulting certified advisors can help maximise savings and coverage benefits.

Conclusion

The exemption of GST on health insurance premiums, effective from 22nd September 2025, marks a historic reform in India's taxation and insurance landscape. By removing the 18% tax, the government has made health insurance more affordable, addressing a critical barrier to financial protection for millions of households. This change not only reduces premiums but also supports India's vision of universal insurance coverage by 2047. As the GST on health insurance effective date approaches, policyholders and insurers must prepare for a smoother, more inclusive insurance ecosystem, ensuring that healthcare remains accessible to all.

People Also Ask

1. What is the effective date for the GST exemption on health insurance in India?

The GST exemption on health insurance premiums is effective from 22nd September 2025, as announced by the GST Council.

2. Which health insurance policies are covered under the GST exemption?

The exemption applies to all individual health insurance policies, including family floater plans, senior citizen plans, and critical illness policies, along with their reinsurance.

3. Will existing health insurance policies benefit from the GST exemption?

Yes, renewals or premium payments made on or after 22nd September 2025 for existing individual policies will be GST-free. Previous payments are not eligible for refunds.

4. How much can policyholders save with the GST exemption?

Policyholders can save approximately 18% on premiums. For example, an INR 30,000 premium previously cost INR 35,400 with GST; now, it will cost INR 30,000.

5. Does the GST exemption apply to group health insurance policies?

The exemption currently covers only individual health insurance policies. Group policies are not explicitly included, pending further clarification from CBIC.

6. Will the GST exemption increase insurance costs for insurers?

Insurers may face higher operational costs due to the loss of Input Tax Credit, which could reduce the extent of premium cuts to 10-15% in some cases.

7. How can policyholders ensure they benefit from the GST exemption?

Policyholders should verify with their insurers that the GST exemption is applied to premiums paid on or after 22nd September 2025 and demand GST-compliant bills.

8. Can a business claim Input Tax Credit (ITC) on employee health insurance premiums?

Generally, no. Under Section 17(5)(b) of the CGST Act, ITC is blocked for life and health insurance premiums, including group policies for employees.

9. Can I get a refund on the GST paid for a 3-year upfront insurance premium?

Only during the initial "free-look" period. If you cancel within the first 15–30 days of the policy, you get a full refund, including GST. After this period, you may get a pro-rata refund for the base premium, but the GST is non-refundable as it has already been paid to the government.