The proposal by the Group of Ministers (GoM) to exempt health insurance premiums from Goods and Services Tax (GST) is more than a mere fiscal adjustment; it marks a crucial step in reshaping India's health insurance market. Premiums currently attract 18% GST, which makes health insurance unaffordable for many middle-income families and senior citizens. Removing this levy would not only reduce prices but also reinforce the view that health insurance is a necessity rather than a luxury.
The proposal by the Group of Ministers (GoM) to exempt health insurance premiums from Goods and Services Tax (GST) is more than a mere fiscal adjustment; it marks a crucial step in reshaping India's health insurance market. Premiums currently attract 18% GST, which makes health insurance unaffordable for many middle-income families and senior citizens. Removing this levy would not only reduce prices but also reinforce the view that health insurance is a necessity rather than a luxury.
The case for reform is compelling. Healthcare inflation in India has consistently outpaced overall consumer inflation, leaving households vulnerable to financial shocks. For many families, an unforeseen medical emergency can erode years of savings. Yet, insurance penetration is still modest because affordability is a critical barrier.
For instance, a premium of ₹10,000 rises to ₹11,800 after GST, which is enough to deter families already managing competing priorities. Removing the tax directly addresses the affordability gap and could encourage many to buy coverage for the first time.
The potential impact of such a measure would extend beyond immediate cost savings. Lowering entry barriers could draw in younger customers, strengthening the risk pool and creating long-term stability for the industry. Senior citizens, who face the steepest premiums, would gain meaningful relief, while families managing multiple policies for children or elderly dependents would receive help from greater financial flexibility.
However, the industry must also confront the operational realities of this proposal. Without GST, insurers will no longer have access to the input tax credits that currently help offset expenses related to technology, distribution and operations. There is a risk that these added costs could be built into base premiums, thereby diluting the intended benefit of the reform. Insurers must therefore maintain discipline and transparency in pricing to ensure that the relief reaches consumers.
Beyond costs savings
The wider implications are equally important. Greater insurance penetration would reduce dependence on out-of-pocket spending, which continues to dominate healthcare financing in India. This shift would not only protect households from financial distress but also reduce the strain on public healthcare systems, enabling more effective allocation of government resources. At a macroeconomic level, improved financial preparedness supports household stability, sustains consumption, and contributes to overall economic resilience.
International experience provides a useful perspective. Countries such as the United Kingdom and Australia have long offered tax exemptions or incentives on health insurance premiums, recognising that financial protection must be encouraged through supportive policy. India's proposed reform is consistent with this global approach and reflects a progressive policy direction where health insurance is viewed as a fundamental enabler of inclusive growth.
While the government may forgo some GST revenue in the short term, the long-term benefits – stronger households, reduced vulnerability, and enhanced economic productivity – are far more significant. This is not simply a financial concession; it is an investment in resilience and social security.
As the GST Council takes up this recommendation, it is vital that policymakers, insurers and the wider healthcare ecosystem lend their support. An exemption on health insurance premiums has the potential to broaden access, strengthen risk pools, and advance the goal of inclusive financial protection. It is a reform that combines economic rationale with social purpose, one that could set the foundation for a healthier, more secure India.
Rakesh Jain is CEO of Reliance General Insurance.