Health insurance premiums: Need for tax relief | Photo Credit: iStockphoto

Recent news about Kerala High Court passing an interim stay order to exempt GST on premium paid for group health policies taken by retired bank employees, gave a minor jolt to many. While everyone was rejoicing on the removal of GST, at the rate of 18 per cent, on individual and family floater health policies, the fine print which mentioned that the exemption was not extended to group health policies had largely gone unnoticed.

The All-India Bank Pensioners and Retirees confederation appears to have been the first to notice it. Some of the two lakh retired bankers opting for the group health insurance policy through this association appear to have flagged that they were still being asked to pay the GST on the annual premium. While the stay on the levy of GST on these policies gives some relief, this may change depending on the outcome of the Court hearing.

But the outcry of the ex-bankers has helped highlight the plight which many others find themselves in too. The FAQ issued by the CBIC states that, “the exemption is explicitly for all INDIVIDUAL life and health insurance policies and the 18 per cent GST rate will be applicable on Group Insurance policies.”

The use of the bold font and capital letters to stress on the word ‘individual’ by the CBIC is interesting. It does not mean that all health policies covering individuals are exempt. It means that only those policies covering individuals and taken individually through separate contracts with the insurers, are exempt. If individuals opt for a policy collectively with a group, they must pay GST on the premium.

These rules are unfair because almost 82 per cent of the people have taken health covers through group policies. Groups such as retired employees, self-employed, those taking cover for parents through the employers’ group policies etc are hurt hard by these rules. If the objective of the waiver is to prompt more people to take health cover, then group health insurance policies must also be encouraged.

The GST must be waived for not just retired bank employees, but for all group health insurance policies.

The rationale

The number of people being covered by group health insurance is not small, at 25.5 crore in FY24, as per IRDAI. These people account for 82 per cent of the total group and individual health insurance policies. This number excludes people covered under government schemes.

As far as premium goes, gross premium on group health policies was ₹55,666 crore in FY24. This accounted for 57 per cent of the premium from individual and group policies. Now, the Council has agreed to forego GST of around ₹7,500 crore by waiving GST on individual and family floater policies (as per FY24 numbers).

It will have to forego an additional ₹10,000 crore, if the group plans are also waived, based on FY24 numbers. If we account for the increase in premiums over the last two years, even then, the revenue foregone is expected to be less than Rs 15,000 crore. This is surely not a tall ask given that there is an urgent need to ensure health security with the public healthcare system in disarray and not sufficient to cope with the growing healthcare needs.

The rationale for not granting GST exemption on group health policies appears to be that — these policies are commercial contracts entered between a company/an association of persons and the insurer. These contracts are different from individual policies in many ways — the premium is lower, there is no waiting period for pre-existing diseases, no medical check-up is necessary and so on.

But those participating in group insurance need not be punished because they are deriving these benefits. If GST is waived on these policies, their attractiveness will increase and more companies and associations may come forward to offer group insurance to their employees, thus improving penetration.

The claim that companies can avail input tax credit on the GST paid and so the exemption is not needed, is misleading. ITC on GST on insurance premium is allowed only in sectors where such group policies are mandated by law or if the outward supply is in the same category as the input service. This is not true in most cases.

Premium payment models

There is wide variation within group health insurance models and painting them all with the same brush leads to wrong policy decisions.

In the first model, the company bears the entire premium burden. Many companies in India follow this model since it is a form of employee welfare expenditure and is akin to meeting the healthcare cost for the employee. This is done with the intention to increase employee loyalty and improve employee retention.

In the second model, the employer pays the premium for a standardised minimum cover. But if the employee wants higher cover, then he/she must bear the additional premium on enhanced cover.

Third, the employer negotiates on behalf of the employees and gets them a lower premium and all the benefits which group policies enjoy. But the entire premium is deducted from the payroll in a phased manner. Many companies offer cover for parents under this model.

In the fourth model, the insured could be a retired person or a self-employed person, who is a part of an association which negotiates with an insurance company for a group health insurance cover. The entire premium must be borne by the insured in such cases as well.

Different strokes needed

The GST Council needs to acknowledge that premiums for all group policies are not borne by employers. In three out of four models, the individual is paying money out of his pocket, though the contract is negotiated by the company or the association.

The fourth category is especially vulnerable as it consists of senior citizens and the more vulnerable non-salaried people. Slapping GST on these groups is far from equitable.

With the additional tax foregone being limited to under ₹15,000 crore, the Council should seriously consider exempting all group health policies from the incidence of GST.

Published on November 6, 2025