India’s recently announced Goods and Services Tax (GST) reforms mark a milestone in the journey towards achieving universal healthcare. This healthcare tax overhaul signals a strong push to make healthcare more accessible and affordable for millions, especially those struggling with the high costs of treatments or health products.
Industry changes
The biggest win for households is the complete removal of GST on individual health and life insurance premiums. Until now, a family paying ₹50,000 per year for health insurance had to add another ₹9,000 in GST. From September 22, 2025, this additional burden will disappear – making insurance 18% cheaper. The reform covers all types of individual life insurance – term, unit-linked insurance plan (ULIP) and endowment – as well as health insurance plans such as family floats and senior citizen policies. Even reinsurance is included, so the entire chain benefits. This move directly supports India’s policy objectives by addressing one of the biggest barriers to insurance coverage, which today stands at only about 3.7% of GDP, compared to the global average of 6.8%. How much consumers actually gain, however, will depend on whether insurers pass on these savings. Without clear monitoring, there is a risk that part of the benefit may be absorbed before reaching policyholders.
Hospital room charges continue to be treated differently under GST. Rooms costing less than ₹5,000 per day remain exempt, protecting families and lower income earners. Non-intensive care unit (ICU) rooms above ₹5,000 per day continue to attract 5% GST without any input tax credit, a rule since July 2022. In contrast, all critical care units—ICU, critical care unit (CCU), intensive coronary care unit (ICCU) and neonatal intensive care unit (NICU)—are fully excludable from the charges. This ensures that life-saving care remains tax-free, while only premium accommodation options during inpatient care face tax. Essential medical services provided by hospitals, doctors and paramedics also remain GST-free, keeping the treatment itself. In short, there is no change here—the system continues as it has since 2022.
Business impact
The recent GST significantly reduces the conversion costs for manufacturers and service providers of healthcare products. By reducing GST on most medicines to 5% and reducing tax on life-saving medicines to zero, the GST Council has simplified compliance and brought down prices across the supply chain.
Medical devices and diagnostics are now mostly under a flat 5% slab. In practice, this means that hospitals purchasing diagnostic kits that previously attracted 12% GST will now pay only 5%, reducing the cost of procurement. For example, a CT scan machine is now subject to only 5% tax, compared to 18% previously. A hospital purchasing a CT scan machine will face a much lower upfront bill, reducing the capital cost and potentially reducing patient charges over time.
Routine services such as blood tests, X-rays and MRIs in laboratories may also become slightly cheaper. While the laboratories themselves remain GST-free, their inputs – kits, reagents and equipment – are now taxed less. If the laboratories pass on the savings, patients should see a reduction in the cost of routine tests. Pharmacies and small clinics benefit from simpler tax structures and sharper price competition. Manufacturers and distributors will have to adjust their prices and contracts, while hospitals and laboratories can negotiate better terms with insurers and corporate clients.
The reforms do not stop at treatment. They also push preventive health. GST on gyms, fitness centers, yoga studios, salons, hairdressing and wellness services is down from 18% to 5%. Cigarettes remain heavily taxed at 28% GST plus a compensation Cess, which increases the effective tax from 52% to 88%. A new 40% “sin goods” slab has been announced, but will only be applied after Cess liabilities are eliminated. Sugary drinks – whether carbonated, sweetened or flavored – have been moved to the new 40% slab, up from 28% plus a waste, placing all such drinks in the highest tax bracket to discourage consumption and raise revenue for public health. For everyday households, healthier living is getting a little easier: Personal care items like hair oil, bars of soap, shampoos, toothpaste, toothbrushes, talcum powder, face powder, shaving cream and aftershave will now attract 5% GST from the previous 12% to 18%. A ₹100 bottle of shampoo, which previously cost ₹112 to ₹118 with GST, will now cost just ₹105.
In perspective
These GST reforms are designed to transform how India finances healthcare in line with the Viksit Bharat 2047 goals. By removing GST on insurance, reducing the cost of life-saving medicines, simplifying taxation on equipment and reducing rates on preventive services, the government has created a system that supports the entire healthcare chain.
The true test of success will not be in higher revenue collections, but in how many more treatments people can access, whether preventive and wellness services become commonplace, how far consumers trust healthcare, whether the misuse of antibiotics and Schedule H drugs is curbed, and, most importantly, how many lives are saved.
Dr Ankur Mutreja is Director, External Affairs and Health Security, Pathway. Neeraj Jain is Director, Growth, Asia, Middle East and Europe, Pathway
Published – September 12, 2025 12:08 PM IST
