The Goods and Services Tax (GST) levied on healthcare and life insurance services has played a pivotal role in India’s economy. According to Minister of State for Finance Pankaj Chaudhary, over Rs 16,000 crore was collected from healthcare and life insurance services in FY24, including Rs 8,135 crore from life insurance and Rs 8,263 crore from health insurance. In comparison, the total GST receipts from these sectors were slightly higher in FY23 at Rs 16,770 crore.
“The healthcare sector is a key catalyst behind the growth of India’s GST revenue with collections from healthcare and life insurance services soaring to over Rs 16,000 crore in FY24 itself. This is indicative of the sector’s widening reach and its role in the country’s economy. The revenue generated is also in line with the government’s vision of making healthcare and insurance accessible through reinvesting into public health initiatives such as the Ayushman Bharat designed to transform the lives of more than the 5 crore families that have already benefitted,” said Dr. Sanjeev Singh, Medical Director, Amrita Hospital, Faridabad.
This steady contribution underlines the growing importance of healthcare and life insurance services in the country’s financial landscape. However, there are concerns about the impact of GST on the affordability and accessibility of essential healthcare services. Experts are calling for a careful balance between revenue generation and making healthcare more accessible for the average citizen.
Addressing the GST Burden on Health Insurance
“As the healthcare and insurance sectors continue to grow, it’s crucial for the government to ensure that the GST burden does not discourage individuals from purchasing health insurance policies. Presently, health "insurance" in India is often viewed as “assurance” because of the high likelihood of claims being rejected or insufficiently covered. This has led to skepticism among the public regarding the true value of health insurance,” said Dr. Sameer Bhati, Director of Star Imaging and Path Lab.
Dr Bhati advocates for more comprehensive coverage that includes pre-existing diseases (PED) and lifestyle-related illnesses. “The government should aim to enhance the treatment coverage and services associated with health insurance, while also making the IRDA more efficient, like SEBI, to ensure better regulation and transparency in the industry,” he said. According to Dr. Bhati, such reforms would increase the adoption of health insurance policies, ensuring that the government's GST revenue continues to grow as a result.
Furthermore, he suggests that the tax benefits under Section 80D should be extended to all taxpayers, irrespective of the tax regime, to further incentivise individuals to opt for health insurance policies. This could boost policyholder participation while maintaining the government's revenue intake.
The Impact of GST Exemption or Reduction on Healthcare Access
Given the rising costs of healthcare, especially in rural areas, there is a pressing need for the government to reconsider the GST rates on essential healthcare services. By reducing or exempting GST on critical healthcare services such as diagnostics, outpatient treatments, and life-saving medications, the government could immediately reduce out-of-pocket expenses for patients. This would make healthcare more affordable and accessible to the masses.
Dr. Bhati explains that lowering taxes on essential healthcare services could lead to more people opting for preventive care. “A reduction in GST on healthcare services could encourage routine check-ups and early diagnoses, ultimately reducing the overall burden on the healthcare system. This would contribute to a healthier and more equitable society,” he stated.
Experts also argue that the reduction or elimination of GST on healthcare equipment and medical devices could make them more affordable, enabling hospitals and clinics to deliver better services, especially in underserved areas. “Making critical care services and medical equipment more affordable would drastically improve access to quality healthcare, particularly for those from lower-income backgrounds,” said Dr. Bhati.
The Role of the Healthcare Sector in Driving GST Revenue Growth
The healthcare industry has increasingly become a cornerstone of India’s GST revenue. With the surge in demand for healthcare services post-COVID-19, the sector has seen a steady rise in its contribution to the government’s revenue pool. The revenue generated from healthcare and life insurance services indicates the sector’s significance to India’s economy, as healthcare spending continues to grow, fueled by rising incomes, urbanisation, and a heightened focus on health and wellness.
Highlighting the dual purpose of healthcare sector revenues: financial sustainability and reinvestment into public health initiatives, Dr Sanjeev Singh said, “The healthcare sector is not only a major contributor to India’s GST revenue, but it also plays an essential role in the government’s broader vision of making healthcare more accessible and inclusive,” he said.
Dr. Singh also pointed out that the revenue from GST in healthcare and life insurance services helps to fund initiatives like Ayushman Bharat, which has already benefitted over 5 crore families. As the Indian healthcare market is poised to reach $372 billion by 2024, the role of the healthcare sector in accelerating economic growth cannot be overstated. This growth is tied to the ability of the government to effectively reinvest the GST revenue into healthcare infrastructure, ensuring both short-term and long-term benefits.
Aligning Revenue Generation with Public Health Objectives
While revenue collection through GST is vital for funding public welfare programs, experts argue that it must align with the broader goals of improving healthcare access and affordability. If the revenue is not effectively channeled into improving the healthcare system, it may end up creating a situation where only the affluent benefit from accessible healthcare, while the rest are left behind.
Dr. Bhati advocates for using the funds raised through GST to provide subsidies, incentives, and public awareness campaigns to promote greater insurance coverage and equitable access to healthcare. “Revenue generation through GST should support healthcare subsidies for lower-income groups. If this is done right, we can build a more inclusive healthcare system,” he said.
Another suggestion is for the government to consider imposing higher GST on harmful products such as tobacco and alcohol. The revenue generated from these taxes could be directed towards strengthening public health services and programs aimed at prevention and early diagnosis. “This would not only reduce consumption of harmful products but also provide a new funding stream for improving healthcare access,” said Dr. Bhati.
The GST collected from healthcare and life insurance services plays an important role in funding India’s public health system. However, it is crucial that the government ensures this revenue is reinvested into healthcare infrastructure and services, particularly for underprivileged communities. The healthcare sector’s contribution to India’s economy is vital, but balancing the revenue generated with affordable and accessible healthcare services remains a challenge.
