Context:

·       India has introduced a significant overhaul of its Goods and Services Tax (GST) framework in the healthcare sector, marking a major stride toward achieving universal health coverage. By restructuring taxation related to healthcare, the government aims to reduce costs and improve accessibility, particularly benefiting those who have struggled with expensive treatments and essential health products. These reforms are expected to ease the financial burden on millions of citizens and enhance their access to vital medical services.

·       This article examines the key features of the newly announced GST reforms, which focus on making medical care more affordable by lowering insurance premiums, cutting taxes on medicines and medical equipment, and supporting preventive health services.

Sectoral Changes in GST for Healthcare and Insurance

·       One of the most transformative changes is the complete elimination of GST on individual health and life insurance premiums. Previously, families paying ₹50,000 per year for health insurance had to bear an additional ₹9,000 as GST, increasing the overall cost of coverage. Starting September 22, 2025, this extra financial burden will be removed, effectively reducing insurance costs by 18%.

·       This exemption covers all categories of life insurance, including term policies, Unit Linked Insurance Plans (ULIPs), and endowment plans, along with various health insurance products such as family floaters and senior citizen policies. Even reinsurance premiums are included, meaning the entire insurance value chain benefits from this reform.

·       This measure aligns with the government’s broader policy goal of expanding insurance coverage in India, which currently accounts for only 7% of the country’s GDP—a figure significantly below the global average of 6.8%. However, the real impact on consumers will depend on whether insurance companies fully pass these savings onto policyholders. Without effective monitoring and regulation, there is a risk that some of the cost reductions may be retained by insurers, rather than benefiting the insured.

GST Rules for Hospital Rooms

·       The treatment of hospital room charges under GST remains mostly unchanged. Hospital rooms priced below ₹5,000 per day continue to be exempt from GST, providing relief to middle- and lower-income families. Non-ICU rooms that cost more than ₹5,000 per day still incur a 5% GST, but crucially, without input tax credit, maintaining some level of taxation on premium accommodations.

·       On the other hand, all critical care units—including Intensive Care Units (ICU), Coronary Care Units (CCU), Intensive Cardiac Care Units (ICCU), and Neonatal Intensive Care Units (NICU)—remain fully exempt from GST regardless of their room tariffs. This ensures that lifesaving and emergency medical treatments remain tax-free, while only higher-end inpatient room options attract tax.

Core Medical Services Remain Untouched

Beyond insurance premiums and hospital room charges, core medical services provided by hospitals, doctors, and paramedical staff continue to be exempt from GST. This means that fees for consultations, surgeries, and other treatments are not subjected to taxation, ensuring that essential healthcare services do not become more expensive for patients.

Business Impact of GST Cuts on Healthcare and Wellness

·       The recent reforms have also reduced the GST rates applicable to health product manufacturers and service providers, which could have a positive ripple effect on overall healthcare affordability. Most medicines are now taxed at a uniform rate of 5%, with life-saving drugs fully exempt (zero-rated). Medical devices and diagnostic equipment have similarly benefited from tax reductions, now uniformly taxed at 5%, down from previously higher slabs. For example, CT scan machines are now subject to a 5% tax instead of the earlier 18%, reducing hospitals’ capital expenditure and potentially lowering charges for patients.

·       Diagnostic laboratories remain exempt from GST on their services, but the inputs they use—such as kits, reagents, and equipment—are taxed at lower rates. This should help laboratories reduce procurement costs, potentially leading to more affordable blood tests, X-rays, MRIs, and other diagnostic procedures if labs choose to pass these savings to consumers. Pharmacies and small clinics also stand to gain from simplified tax structures and increased competitiveness, while hospitals might be able to negotiate better terms with insurers and corporate clients due to overall cost reductions.

Push for Preventive Health

The GST reforms extend beyond treatment to encourage preventive health practices. Taxes on gyms, yoga centers, fitness studios, salons, and wellness services have been reduced from 18% to 5%. This makes healthy lifestyle options more affordable and accessible, promoting better public health outcomes.

Increased Taxation on Harmful Products

While these reforms incentivize healthy living, they simultaneously impose stricter taxes on harmful products. Cigarettes continue to attract a 28% GST plus cess, leading to an effective tax rate between 52% and 88%. Sugary beverages—including aerated, sweetened, and flavored drinks—have been moved to a higher 40% GST slab, up from the previous 28% plus cess. This increase aims to discourage consumption of unhealthy products while raising additional revenue for public health initiatives.

GST Reforms in Perspective

·       The newly introduced GST reforms are designed to support India’s healthcare vision as articulated in the 2047 Viksit Bharat plan by reducing financial barriers throughout the healthcare sector. By removing GST on insurance premiums, lowering taxes on medicines and medical equipment, and decreasing rates on preventive health services, the reforms create a more affordable and accessible healthcare environment.

·       The true measure of success, however, will depend on real-world outcomes: whether more people can access treatment; whether preventive health services become widespread; whether consumer trust in the healthcare system is strengthened; whether antibiotic misuse is curbed; and ultimately, whether these reforms contribute to saving more lives across the country.