Why reducing GST to 5% makes more sense than exemption for affordable health insurance: Niva Bupa CEO explains – CNBC TV18

Krishnan Ramachandran, MD & CEO of Niva Bupa Health Insurance, has called for a reduction in Goods and Services Tax (GST) on health insurance premiums to 5% from the current 18%.

Speaking to CNBC-TV18, he emphasised that lowering GST, rather than exempting it entirely, aligns better with affordability goals and industry sustainability.

Ramachandran argued that while exemption from GST might seem like a cost-cutting measure, it would deprive insurers of the crucial input tax credit (ITC) benefit, effectively increasing operational costs.

“Exemption does not serve the objective of bringing down prices because it means we do not get credit for inputs. It increases costs, which is contrary to the purpose of the discussion around GST,” he told CNBC-TV18.

He added that a 5% GST rate would directly lower sticker prices for policyholders while simplifying execution for insurers.

“The recommendation from the industry and my strong recommendation is to bring it down to 5%. It serves the affordability objective and is simpler from the execution standpoint,” he said.

It must be noted that Finance Minister Nirmala Sitharaman recently addressed the possibility of reduced GST rates for health and life insurance policies.

In a written reply to the Lok Sabha, she announced that the GST Council is considering the formation of a Group of Ministers (GoM) to review GST rates in these sectors.

If the GoM proposes a rate reduction, premiums could drop, making insurance more affordable for policyholders. However, other industry experts also caution that the full benefits hinge on allowing insurers to claim ITC.

In an earlier conversation with CNBC-TV18.com, Rajesh Kumar, Founder of Square Insurance, highlighted operational cost pressures in the absence of ITC.

“Without the benefit of input tax credit, insurers—especially those serving rural areas—will face higher operational costs, making premiums less affordable. This is critical as rural health insurance coverage is already lower than urban areas,” Kumar noted.

The GST system, introduced in 2017, allows businesses to claim back the tax paid on inputs, enabling insurers to maintain competitive premiums.

Removing ITC eligibility while reducing GST rates could negate the affordability benefits for policyholders.