The Dual Edge of GST 2.0: Balancing Affordability and Operational Strain in Indian Healthcare
The government’s recent Goods and Services Tax (GST) rationalization—branded as “Next-Gen GST reforms” and a step toward Affordable Healthcare for All—marks a pivotal moment for India’s healthcare sector. Effective September 22, 2025, these reforms promise visible consumer relief, greater alignment with national missions like Ayushman Bharat, and a push toward preventive health.
Yet, beneath the headline wins lies a more complex reality. For healthcare providers, insurers, and manufacturers, GST 2.0 introduces a dual challenge: how to deliver affordability to patients while managing deeper operational and structural cost pressures.
A Perspective from the CEO’s Desk
Amit Gandhi, Founder & CEO of The Insight Tribe, highlights the paradox at the heart of these reforms:
“The GST rationalization is a commendable step for consumers, lowering the cost of medicines and insurance. But the structural design—keeping core hospital services ‘exempt’ instead of ‘zero-rated’—shifts the burden onto providers. This turns GST into an invisible, unrecoverable cost embedded into operations. Leaders must now rethink their strategies, optimize costs, and preserve care quality, or risk being squeezed between affordability mandates and rising overheads.”
I. The Policy Dividend: A Clear Win for Patients
For consumers, GST 2.0 delivers tangible relief.
- Affordable Medicines and Devices
- Essential medicines for conditions like diabetes and hypertension now attract 5% GST (down from 12%).
- Life-saving drugs, including cancer therapies, rare disease treatments, and critical vaccines, are fully exempt. Patients managing chronic conditions could save up to ₹2 lakhs annually.
- Medical devices now carry a uniform 5% GST, cutting upfront costs on equipment like ultrasound machines by as much as ₹1.5 lakh—encouraging adoption in Tier-2 and Tier-3 cities.
- Essential medicines for conditions like diabetes and hypertension now attract 5% GST (down from 12%).
- Boosting Insurance Penetration
- All health insurance and life insurance policies are now GST-exempt (from the earlier 18%). This unlocks affordability for middle-class households and supports India’s goal of universal coverage.
- All health insurance and life insurance policies are now GST-exempt (from the earlier 18%). This unlocks affordability for middle-class households and supports India’s goal of universal coverage.
II. The Structural Impediment: Blocked Input Tax Credit (ITC)
The reforms’ consumer-facing benefits come at a cost to providers and insurers.
- Hospitals: The Embedded Tax Problem
Core healthcare services remain GST-exempt (SAC 9993), meaning hospitals cannot claim ITC on their expenses. High-cost inputs like manpower, IT support, and facility maintenance (18% GST) become unrecoverable costs, inflating patient charges and reintroducing cascading taxation.
- Insurers: The ITC Reversal Dilemma
With premiums exempt from GST, insurers must reverse ITC on operational expenses such as commissions and TPA fees. This reversal—worth 3–5% of premiums—will pressure insurers to marginally raise base premiums, reducing the headline savings for policyholders from 18% to a net 12–15%.
III. Manufacturing Headwinds: The Inverted Duty Structure
For Pharma and MedTech players, the reforms deepen the Inverted Duty Structure (IDS)—where inputs are taxed higher than finished products.
- Pharmaceuticals: Essential medicines are taxed at 5% or Nil, but APIs remain at 12–18%, tying up working capital in unused credits.
- Medical Devices: Finished devices face 5% GST, but key components are still at 18%. This erodes competitiveness for local manufacturers, undermining Atmanirbhar Bharat.
IV. Strategic Outlook: What Industry Must Do
Survival under GST 2.0 requires more than compliance—it demands strategy.
- Policy Advocacy: Push for Zero-Rating
Reclassifying healthcare services from exempt to zero-rated would allow providers to claim ITC while keeping output tax at 0% for patients. As an interim fix, capping input GST on contracted services at 5% could reduce strain.
- Hospitals: Build Cost Resilience
- Run cost elasticity models to optimize the fixed vs. variable mix.
- Revisit outsourcing contracts—sometimes in-sourcing is cheaper than absorbing 18% unrecoverable GST.
- Strategically price taxable services like non-ICU rooms (>₹5,000/day, 5% GST) while maintaining compliance.
- Run cost elasticity models to optimize the fixed vs. variable mix.
- Insurers: Automate to Stay Competitive
- Deploy robotic process automation (RPA) in claims and underwriting to cut costs by up to 25%.
- Use efficiency gains to offset the ITC reversal and maintain affordable premiums.
- Deploy robotic process automation (RPA) in claims and underwriting to cut costs by up to 25%.
GST 2.0 represents India’s boldest step yet toward affordable healthcare. But affordability on paper does not automatically translate into sustainability in practice. The reforms shift taxation from the consumer’s bill to the provider’s balance sheet, creating hidden pressures across the value chain.
For leaders, the imperative is clear: move beyond compliance to proactive cost optimization, automation, and advocacy for structural fixes. Done right, these reforms can be both a relief for patients and a catalyst for a stronger, more resilient healthcare system.