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12 Sep 2025 : A ‘health check’ for the new GST health-care reforms

 Editorial 2: A ‘health check’ for the new GST health-care reforms

Context

Under GST 2.0, the government has established a framework that strengthens the entire healthcare chain, ensuring smoother operations and better access to medical services.

 

Introduction

India’s new Goods and Services Tax (GST) reforms mark a turning point in the pursuit of universal health coverage. This overhaul of healthcare taxation reflects a strong push to make medical care more affordable and accessible for millions, particularly those burdened by high treatment costs and essential health expenses.

 

Sectoral changes

1. Removal of GST on Insurance Premiums

  • Complete GST removal on individual health and life insurance premiums.
  • Families no longer pay 18% extra tax on premiums (e.g., ₹50,000 premium earlier cost ₹59,000 with GST; now only ₹50,000).
  • Covers all types of individual life insurance: term, ULIP, endowment, as well as health plans like family floaters and senior citizen policies.
  • Reinsurance also exempt, ensuring benefits across the value chain.
  • Supports India’s insurance penetration goal (currently 3.7% of GDP vs global 6.8%).
  • Risk remains that insurers may not fully pass on savings without monitoring.

2. Hospital Room Charges

  • Exemptions retained for rooms costing below ₹5,000/day, protecting middle- and lower-income families.
  • Non-ICU rooms above ₹5,000/day taxed at 5% GST (no input tax credit) — rule unchanged since July 2022.
  • ICU, CCU, ICCU, NICU rooms remain fully exempt, regardless of cost, keeping critical care tax-free.

3. Core Medical Services

  • Medical treatment services provided by hospitals, doctors, and paramedics remain GST-exempt.
  • Ensures that essential healthcare is not burdened by taxation.
  • The GST system here continues unchanged from 2022.

 

Business impact

1. Impact on Medicines and Life-Saving Drugs

  • GST on most medicines cut to 5%, simplifying compliance and lowering costs.
  • Life-saving drugs moved to zero GST, directly reducing supply chain prices.
  • Patients benefit from more affordable treatment options.

2. Medical Devices and Diagnostics

  • Medical devices and diagnostic products now under a uniform 5% GST slab.
  • Example: CT scan machines taxed at 5% instead of 18%, reducing hospitals’ capital costs.
  • Hospitals face lower procurement bills, enabling reduced patient charges over time.
  • Routine tests (blood tests, X-rays, MRIs) may become cheaper as labs’ input costs fall.
  • Laboratories remain GST-exempt on services, but reduced taxes on kits, reagents, and equipment lower overall expenses.

3. Benefits for Healthcare Providers

  • Pharmacies and small clinics gain from simpler tax structures and better price competitiveness.
  • Manufacturers and distributors will revise pricing and contracts to align with new GST rates.
  • Hospitals and labs can negotiate better terms with insurers and corporate clients.

4. Preventive Health and Wellness

  • GST reduced from 18% to 5% on gyms, fitness centres, yoga studios, salons, barbers, and wellness services.
  • Cigarettes remain heavily taxed (28% GST + cess, effective 52–88%).
  • Introduction of a new 40% “sin goods” slab — will apply once cess liabilities are cleared.
  • Sugary drinks shifted from 28% + cess to the new 40% slab, placing them in the highest tax bracket to discourage unhealthy consumption.

5. Everyday Household Relief

  • Personal care items like shampoo, soap, toothpaste, toothbrushes, shaving cream, and hair oil now under 5% GST (earlier 12–18%).
  • Example: A ₹100 shampoo bottle that earlier cost ₹112–118 will now cost only ₹105.
  • Households benefit from cheaper essentials and easier access to healthier living choices.

 

GST Reforms for Health Care (Aligned with Viksit Bharat 2047)

  • No GST on insurance → reduces financial burden on households.
  • Lower costs for life-saving medicines → improves affordability of critical treatments.
  • Simplified taxes on medical equipment → encourages adoption of advanced technology.
  • Reduced rates on preventive services → promotes early care and wellness.
  • Wider access to treatments across income groups.
  • Preventive and wellness services becoming a regular practice.
  • Stronger consumer trust in the health-care system.Better control over antibiotic misuse and Schedule H drug sales.
  • Ultimately, more lives saved as health care becomes affordable and accessible.

 

Conclusion

The GST 2.0 health-care reforms mark a transformative step toward affordable and accessible medical care for all. By reducing costs on medicines, diagnostics, insurance premiums, and wellness services, the reforms strengthen the healthcare chain and promote preventive care. With simplified taxation and wider coverage, these measures enhance financial protection, encourage early treatment, and build greater trust in India’s health system.