The reduction of GST on medical insurance from 18% to 0% is certainly a big relief, but there’s a concern regarding the Input Tax Credit (ITC), which insurance companies will no longer be able to claim.
That means insurance companies usually pay GST on various overheads such as office rent, commissions, IT systems, claim processing, and healthcare network services. Earlier, they could offset this GST against the GST they collected while selling policies or charging premiums. In simple terms, the GST they paid to make the “product” could be deducted from the GST they collected when selling it.
Now, without the benefit of ITC, their operational costs will rise, and they may try to recover this by increasing the base premium of policies. In that case, how much this GST relief will actually benefit policyholders remains uncertain.
