GST Reforms 2025: What They Mean for Insurance and Healthcare in India

- By Team Policy Era

Introduction

In September 2025, India’s GST regime underwent a sweeping overhaul aimed at simplification, fairness, and relief across key sectors. Healthcare and insurance, sectors critical for both individual welfare and national resilience, were among those deeply impacted. The reforms include rationalising tax slabs, cutting GST on medicines and medical devices, and exempting individual health and life insurance from GST entirely.

For doctors, hospitals, insurers, and patients, these changes carry implications for costs, margins, compliance, and service delivery. This blog offers a detailed examination of the reforms, their potential impact on health insurance premiums, and the effects on hospitals and medical services.

Overview of GST Reforms 2025

Here are the key changes introduced under GST 2.0:

• The GST Council simplified the multiple tax slabs, reducing them to primarily 5% and 18%, with a special “sin”/luxury slab of 40% for select goods.
• Crucially, all individual life insurance and health insurance premiums (including family floater and senior citizen plans) were moved to 0 % GST, i.e., fully exempted.
• GST on many essential medicines, diagnostic kits, medical devices, surgical gloves, glucometers, and related healthcare equipment was reduced, typically from 12 % or 18 % down to 5 % (or in some cases, nil)
• Some lifesaving drugs and equipment had their previous GST rates slashed or exempted entirely.
• The list of items covered under “healthcare affordable” tax incentives was extended, for example, reducing GST on medical devices, reagents, and ancillary services.

These changes took effect from 22 September 2025, after the 56th GST Council meeting.

Impact on Health Insurance Premiums

1. Immediate Premium Relief

The most headline-grabbing change is the 0 % GST on individual health and life insurance premiums. Previously, premiums attracted 18 % GST, which added to the cost for policyholders. With the GST removed, insurers will no longer add the 18 % tax component, thereby lowering the visible premium burden.

For example, if a health insurance plan had a base premium of ₹20,000, the GST component earlier was ₹3,600 (at 18 %), making the total premium payable ₹23,600. Post-reform, that additional amount falls off, making the same coverage more affordable.

2. Potential Repricing Adjustments

Although the immediate benefit is lower cost to policyholders, insurers may adjust base premium rates or coverage features to maintain margins, especially since they will lose the Input Tax Credit (ITC) component on the GST previously paid. Some analysts expect refinements in underwriting or coverage terms over time to offset cost pressures.

3. Greater Insurance Penetration

Lower premiums and increased affordability may encourage more people to adopt health insurance, especially in underinsured segments. The exemption of GST removes a psychological barrier to buying coverage, making insurance a more attractive protection tool.

4. Group vs Individual Policies

The exemption explicitly applies to individual policies (health, life, floaters). It is not yet clear whether group health policies or corporate coverage will automatically enjoy the same exemption. Some ambiguity remains until more detailed notifications are issued.

Implications for Hospitals and Medical Services

1. Lower Input Costs for Hospitals

With GST on many medical supplies, devices, and consumables reduced to 5% or to nil for lifesaving drugs, hospitals and diagnostic centres will see a decrease in procurement costs.

For example:

• Medical gloves, reagents, and diagnostic kits, previously taxed at 12–18 %, are now subject to lower GST.
• Essential medicines and surgical supplies having reduced or nil GST reduce drug inventory costs for hospitals.

These cost savings can help hospitals optimise margins or pass on benefits to patients via slightly lower treatment charges.

2. Service Exemption Already Exists, but Clarified

Healthcare services (by doctors, hospitals, diagnostic centres) have traditionally been exempt from GST under earlier tax regimes. The 2025 reforms reaffirm and clarify this position, ensuring that medical services remain free from indirect taxation burdens

This means hospital bed fees, consultation charges, surgery charges, and diagnostics are not taxed under GST.

3. Budgeting and Pricing Adjustments

Hospitals will need to revisit their costing models and revise price lists, procurement budgets, and consumable estimates to reflect the lower GST on supplies. Contracts with vendors may need renegotiation.

4. Competitive Advantage in Tier-2 / Tier-3 Hospitals

Hospitals in smaller cities may gain a competitive edge by marketing lower-cost treatments (due to reduced indirect tax burden) and attracting more patients who were previously price-sensitive.

5. Regulatory & Compliance Changes

Hospital finance departments must adjust to the new GST slabs, revise billing templates, update accounting software, and ensure GST input credits are accounted for correctly. Staff training and transition management will be crucial.

Challenges & Caveats

• Loss of ITC for Insurers: Insurers will lose the ability to claim input tax credit on GST they paid earlier on expenses, which might cause upward pressure on premium components.
• Waiting for Detailed Notifications: Implementation details, especially for group policies, renewals, and older policies, await CBIC notifications.
• Transition Adjustments: Insurers and hospitals must adapt quickly to new systems, revise policy documents, and manage transitional rate differences.
• Potential Repricing: Some insurers might recalibrate underwriting or benefits to maintain profitability.
• Awareness & Communication Gap: Doctors, hospital administrators, and consumers must be educated about what is now exempt vs what still carries GST.

Conclusion

The 2025 GST reforms represent a landmark shift in India’s approach to taxing health and insurance services. By fully exempting individual health and life insurance from GST and slashing rates on medicines and devices, the reforms aim to boost affordability, access, and coverage. For hospitals and healthcare providers, the changes reduce input costs, enabling leaner operations and potentially better pricing for patients.

Yet, to truly harness these benefits, stakeholders must proactively adapt, revising pricing structures, renegotiating vendor contracts, updating billing systems, and communicating changes to patients. The window for capitalising on this reform is now.

In the long run, these changes may push India closer to universal health coverage, reduce out-of-pocket expenditure, increase insurance penetration, and support a more resilient health infrastructure, all while making healthcare more sustainable for providers.