India’s recently announced Goods and Services Tax (GST) reforms mark a turning point in the journey towards achieving universal health coverage. This overhaul of health-care taxation signals a strong push to make medical care more affordable and accessible for millions, especially those struggling with high costs of treatment or health products.
Sectoral 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 a year for health insurance had to add on another ₹9,000 in GST. From September 22, 2025, that extra burden disappears — 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 floaters and senior citizen policies. Even reinsurance is included, so the entire chain benefits. This step directly supports India’s policy goals, tackling one of the biggest hurdles to insurance coverage, which today is only about 3.7% of GDP compared to a global average of 6.8%. How much consumers actually gain, however, will depend on whether insurers pass these savings on. Without clear monitoring, there is a risk that part of the benefit could get absorbed before reaching policyholders.
Hospital room charges continue to be treated differently under GST. Rooms costing less than ₹5,000 a day remain exempt, protecting middle- and lower-income families. Non-intensive care unit (ICU) rooms above ₹5,000 per day still attract 5%GST without input tax credit, a rule in place since July 2022. By contrast, all critical care units — ICU, Critical Care Unit (CCU), Intensive Coronary Care Unit (ICCU), and Neonatal Intensive Care Unit (NICU) — stay fully exempt from GST regardless of cost. This ensures that lifesaving care remains tax-free, while only premium accommodation choices during in-patient care face tax. Core medical services provided by hospitals, doctors, and paramedics also remain GST-exempt, keeping treatment itself untaxed. In short, there is no change here — the system continues as it has since 2022.
Business impact
The recent GST cuts substantially reshape costs for health product manufacturers and service providers. By lowering GST on most medicines to 5% and cutting tax on life-saving drugs to zero, the GST Council has simplified compliance and lowered prices in supply chains.
Medical devices and diagnostics are now largely under a uniform 5% slab. In practice, this means that hospitals buying diagnostic kits that earlier attracted 12% GST will now pay only 5%, reducing procurement costs. For example, a CT scan machine is now taxed at only 5% compared to 18% earlier. A hospital purchasing a CT scan machine, will face a much lower upfront bill, reducing capital costs and potentially lowering patient charges over time.
Common services such as blood tests, X-rays, and MRIs at laboratories may also become a little cheaper. While laboratories themselves remain GST-exempt on services, their inputs — kits, reagents and equipment — are now taxed less. If laboratories pass on the savings, patients should see reductions in routine test prices. Pharmacies and small clinics gain from simpler tax structures and sharper price competitiveness. Manufacturers and distributors will need to adjust pricing and contracts, while hospitals and labs can negotiate better terms with insurers and corporate clients.
The reforms do not stop at treatment. They also push preventive health. GST on gymnasiums, fitness centres, yoga studios, salons, barbers and wellness services is down from 18% to 5%. Cigarettes remain heavily taxed at 28% GST plus compensation cess, which adds up to an effective tax of between 52% and 88%. A new 40% “sin goods” slab has been announced but will only apply once cess liabilities are cleared. Sugary drinks — whether aerated, sweetened, or flavoured — have been moved to the new 40% slab, up from 28% plus cess, placing all such beverages in the highest tax bracket to discourage consumption and generate revenue for public health. For everyday households, healthier living becomes a little easier: personal care items such as hair oil, soap bars, shampoos, toothpaste, toothbrushes, talcum powder, face powder, shaving cream, and aftershave now fall to 5% GST from the earlier 12% to 18%. A ₹100 shampoo bottle that earlier cost ₹112 to ₹118 with GST will now cost only ₹105.
In perspective
These GST reforms are designed to reshape how India funds health care in line with the 2047 Viksit Bharat goals. By removing GST on insurance, cutting costs for life-saving medicines, simplifying taxes on equipment, and lowering rates on preventive services, the government has built a framework that supports the entire health-care 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 routine, how far consumer trust in health care grows, whether misuse of antibiotics and Schedule H drugs is curbed, and, most importantly, how many lives are saved.
Dr. Ankur Mutreja is the Director of External Affairs and Health Security, PATH. Neeraj Jain is the Director of Growth for the Asia, Middle East and Europe, PATH
Published – September 12, 2025 12:08 am IST