Zero GST on health insurance: A relief against rising medical inflation

For Indian families, few concerns are as overwhelming as the rising cost of healthcare. A single hospital stay can undo years of savings. With medical inflation climbing at 12–15% annually, treatment expenses are doubling roughly every 6–7 years. A surgery that costs ₹2 lakh today could cost ₹4 lakh in less than a decade. In such an environment, health insurance is not a discretionary purchase, it’s a financial lifeline and even premiums come with an extra burden: an 18% GST.

That has now changed.

On September 3, 2025, the government announced the removal of GST on individual health and life insurance policies. The new rate 0% GST that applies from September 22, 2025, for all fresh purchases and renewals made on or after that date. It’s a strong policy signal that financial protection must be both affordable and accessible.

From Burden to Relief

Put simply: a plan with a ₹30,000 base premium earlier cost ₹35,400 with 18% GST. From the effective date, the same plan bills at ₹30,000 (assuming the base premium is unchanged). That’s ₹5,400 back in the customer’s pocket, enough to fund an annual health check-up, several months of medicines, or childhood vaccinations. For seniors, who often face higher premiums due to age and pre-existing conditions, the relief is especially meaningful. Zero GST turns health insurance from a burdened expense into more accessible protection.

Why This Matters in India

India still records one of the highest out-of-pocket healthcare spending shares in the world, nearly half of total medical expenses are paid directly by households. This is often the point where a medical emergency pushes families into debt traps. By reducing GST to zero, the government has effectively recognized insurance as a basic need, not a luxury. It’s a mindset shift: healthcare protection belongs alongside essentials such as education, food, and housing. This reform is not just about lowering premiums. It reframes health insurance as a fundamental tool of financial security.

How the Change Re-sets Choices

This reform doesn’t just trim a bill; it reshapes behaviour:

● Families: Lower upfront cost frees money for preventive care or upgrading the sum insured.

● Young professionals: With entry barriers lower, starting early becomes an easy, rational choice.

● Senior citizens: Premiums that felt out of reach become more manageable without the tax add-on.

● Insurers: Wider adoption deepens risk pools and supports more sustainable pricing over time.

Closing the Coverage Gap

Despite progress, fewer than one in three Indians has adequate health insurance, compared to 80–90% coverage in developed economies. This gap leaves households dangerously exposed to rising medical costs.

Zero GST can help convert awareness into action. More households buying policies means:

● Stronger risk pools for insurers.

● More stable and equitable premiums.

● Fewer families forced into financial distress by hospital bills.

The result is not only individual protection but also a stronger and more resilient healthcare-financing system.

Why Timing Matters

The timing of this change could not be more relevant. Lifestyle diseases are on the rise, hospitalization costs are steadily increasing, and longer lifespans mean families must prepare for longer medical care. Without insurance, these realities can derail retirement planning, children’s education savings, or even day-to-day financial security. By lowering GST to zero from September 22, 2025, the government has provided households a timely nudge to plan ahead rather than respond in crisis.

If your policy renewal falls after this date, you will automatically see the zero-GST benefit at renewal. If you purchase a new policy after this date, the savings apply immediately.

The Way Forward

The removal of GST is a milestone, but it should be seen as a starting point rather than the finish line.

● Families: Use the savings to review your sum insured, add riders like critical illness or wellness covers, and invest in preventive care.

● Insurers: Keep the experience simple and smooth digital journeys, transparent claims, and communication that emphasizes insurance as care, not just compensation.

● Policymakers: Continue reforms that balance affordability with system stability, ensuring inclusion expands without undermining sustainability.

● As a society: Normalize insurance as part of every household’s financial plan, just like savings or retirement funds.

The move to zero GST on individual health insurance is about much more than tax codes. It makes protection simpler, fairer, and more human. At a time when rising medical costs threaten the financial stability of households, this reform sends an encouraging message: coverage is within reach. It reassures families, strengthens insurers, and ultimately reinforces the nation’s resilience against medical inflation.

(Views are personal; the author is Joint Chairman and MD at BajajCapital)