A full-page release from Central Board of Indirect Taxes & Customs (CBIC) appeared in prominent newspapers on September 4 announcing Next-Gen GST Reform cited as Historic Diwali Gift for the Nation. The Objective cited behind this reform is- for Ease of Living & to build Aatmanirbhar Bharat with the expectation that the ‘Next-Gen GST’ will bring happiness to farmers to enterprises, from households to businesses.
This announcement was the outcome of the 56th meeting of the GST Council held on September 3, 2025. Except for few items, the changes in the GST rates as per the recommendations of the GST Council will become effective from 22nd September 2025.
Healthcare Sector attracted the attention of the GST Council as reflected in the reduction in GST rates for Individual Health & Life Insurance, Ambulances, Thermometer, Medical Grade Oxygen, Diagnostic Kits & Reagents, Oral Hygiene products, Glucometer & Test Strips, and Corrective Spectacles.
Exemption from the GST for Individual Health Insurance is a positive development for the sector. Lower health premiums will make health insurance policies affordable. All individual health insurance policies including family floater plans and senior citizen policies and the reinsurance services thereof have been exempted. This is expected to enhance the penetration of individual health insurance. Even though there are other factors which include the cost of health insurance policies such as coverage for modern treatments, rising medical cost due to cumulative inflation, elevated claims to name a few, e.g., Claims ratios for health insurers crossed 90.0 per cent in FY22-23, up from 60 to 70 per cent in previous years. In early 2024, almost 14 leading insurers from private as well as public sector filed for seeking hike in premiums ranging from 15.0 per cent to 35.0 per cent.
As per Annual Report 2023-24 of the Insurance Regulatory and Development Authority of India, health insurance business is the largest segment among various segments under non-life insurance business as health insurance business had contribution 40.29 per cent of the total premium. In 2022-23, this contribution stood at 38.02 per cent. Health Insurance Segment had reported the growth of 19.50 per cent in 2023-24 (a marginal decline from 21.32 per cent growth in 2022-23).
By March 31, 2024, there were 25 General Insurers (4 in Public Sector and 21 in Private Sector), and 7 Standalone Health Insurers (Aditya Birla Health, Care Health Insurance, ManipalCigna Health Insurance, Narayana Health Insurance, Niva Bupa Health Insurance, Reliance Health Insurance which was taken over by Reliance General Insurance, and Star Health and Allied Insurance) operating in India. Galaxy Health and Allied Insurance started operations in FY 2024-25. It is worthwhile to note that the GST rate reduction is applicable for individual health insurance. Overall, health insurance business is India mainly falls into three classes of business – Government sponsored health insurance schemes (about 45.0 per cent of the lives covered as on March 31, 2024), group business (about 45.0 per cent), and about 10.0 per cent under individual policies issued by general and health insurers (IRDAI Annual Report 2023-24, p.40). Standalone Health Insurers posted a growth of 16.0 per cent in premium collections for FY25.
When observed in terms of premium, the share of Group business stood at 51.68 per cent by March 31, 2024, followed by individual insurance which stood at 38.55 per cent. Amount of premium from government business was just 9.77 per cent. Individual Health Insurance coverage in terms of lives is lowest among three categories but in premium terms, it is just next to Group business. The GST rate cut will encourage insurance companies to enhance presence in under-penetrated areas, and improve coverage.
In recent years, Stand-alone Health Insurers (SAHI) have reported growth but their penetration in Tier-V and Tier-VI cities was negligible as these entities had no office in Tier-V and just one office in Tier-VI cities. Their presence is limited to Tier-I, Tier-II, Tier-III and Tier-IV cities. Total number of offices of Stand-alone Insurers stood at 1,657 as on March 31, 2024 (up from 1,527 as on March 31, 2023). Out of these offices, 80.0 per cent of offices were located in Tier-I cities (1,325 offices), 11.0 per cent in Tier-II cities (186 offices), 7.0 per cent in Tier-III cities (118 offices) and 2.0 per cent in Tier-IV cities (27 offices). The GST rate cut will be positive move in this direction.
Total Health insurance Premium in FY25 stood at Rs. 1.18 lakh crore as against Rs. 1.08 Lakh crore collected in FY24. Rise in insurance premia was being considered as a major deterrent, and one major contributor to the rise in cost was 18.0 per cent GST. Overall, growth in Health Insurance Premiums was just 8.98 per cent in FY25. Therefore, GST cut will contribute positively in growth of Health Insurance sector.
Pharmaceuticals form an important sub-segment of the Healthcare Industry. Under the existing GST regime, all drugs/medicines have been prescribed a concessional rate of GST of 5.0 per cent, except those specified at nil rate. Drugs/medicines are not fully exempted as the manufacturers or dealers would not be able to claim Input Tax Credit (ITC) on the GST paid on raw materials (inputs). This in turn would increase the effective tax incidence as well as the cost of production for manufacturers/dealers. Extra cost due to increased tax incidence and cost of production will be passed on to the patients/consumers resulting into increase in the prices of pharmaceutical products. Hence, the provision of full exemption from GST for pharma products was considered a counterproductive measure, and not agreed.
GST rate on 33 life-saving drugs, diagnostic kits has been reduced to 0%. For Other medicines including Ayurveda, Unani, Homeopathy, the GST rate was reduced from 12.0 per cent to 5.0 per cent.
Services by way of job work in relation to pharmaceutical products will also attract lower rate of 5.0 per cent with Input Tax Credit. These services used to attract GST rate of 12.0 per cent earlier. In contrast to this, job works services in relation to manufacture of alcoholic liquor for human consumption will continue to attract a rate of 18.0 per cent with ITC.
Honey is known for its medicinal properties and is effective in managing multiple conditions. Differential tax treatment for artificial honey and natural honey is intended to promote natural honey.
Medical devices will also attract lower GST rate. The reason behind reduction of GST on medical devices is also to lower the cost of healthcare. At the same time, the CBIC has acknowledged that the existing structure already had ‘inverted duty structure’, and reduction in GST rate may deepen the inversion. But under the GST regime, refund of accumulated ITC which arises on account of inverted duty structure, is available to manufacturers. The need is to enable ‘expedited refunds’, and for that purpose, recommendation on ‘process reforms’ has been given by the GST Council.
Motor vehicles which are cleared as ambulances and are fitted with necessary fitments, furniture, and accessories necessary for an ambulance will attract now 18.0 per cent GST rate. Earlier, the GST rate was 28.0 per cent.
Oral Hygiene got attention as the GST Council recommended to reduce the GST rate to 5.0 per cent on tooth paste, tooth brush and dental floss. These items are considered as basic dental hygiene goods.
Spectacles and goggles for correcting vision were subject to the GST rate of 12.0% and 18.0% respectively. Now, the applicable rate will be just 5.0 per cent. Spectacles and other goggles, i.e., other than correcting vision, will continue to attract GST rate of 18.0 per cent.
To conclude, Next-Gen GST has revenue implications but it will put more money in the hands of common man as GST rate reduction will result into lower Out of Pocket Expenditure for healthcare. This will encourage people to spend more which in turn will bring back the money in the economy itself. The Government is also looking to boost ‘domestic spending’ as share of domestic consumption is almost 60.0 per cent in Gross Domestic Product (GDP) of India. This will also act as a cushion while dealing with the economic blow of the US tariffs.
Dr. Anil Kumar Angrish- Associate Professor (Finance and Accounting), Department of Pharmaceutical Management, NIPER S.A.S. Nagar (Mohali), Punjab
Disclaimer: Views are personal and do not represent the views of the Institute.
