Taxation, Insurance Premiums & Mental Health: The hidden cost

November 12, 2025

Vijay Lakshmi Yadav

Each month, an Indian household faces the choice of cutting nutritious meals to balance the monthly budget. This is the hidden cost of taxation: Mental Health. Tax debates usually revolve around compliance, fiscal health and growth of a country. But for a regular household, it carries another cost : anxiety, trade-offs and mental burden of every rupee stretched.

Media reports show that 50% of Indian households contribute nearly the same GST share as the middle class instead of earning far less. This pushes families to cut their meals, postpone their medical check ups or essential treatments due to regressive taxing structures. Over time, such financial stress converts to psychological strain, deepening the roots of insecurity and helplessness. To ease this strain, the Government has introduced GST 2.0, reducing effective tax by 10-15% on 3rd September, 2025.

Lowering the GST on groceries, household goods, healthcare products and even insurance gives much needed room to save more money or prioritise other essential expenses. It includes less anxiety over daily purchases, more willingness to seek preventive care and a reduced struggle of being trapped between rising costs against stagnant wages. Meanwhile, the slab of 40% on “sin goods”, such as tobacco and sugary drinks may discourage consumption and benefit community health.

With this, it becomes clearer that taxation is a social determinant of health. A study published in Lancet titled, “How do income changes impact on mental health and wellbeing for working age adults? A systematic review and meta-analysis” finds that financial losses have a greater effect on mental health than the positive effect of financial gains.When the rate of taxation spikes, it generates economic strain which leads to anxiety, depression and lower productivity.

Even a small relief in taxation lightens the mental load. Reforms must go beyond indirect taxes. Insurance frameworks need to enforce parity under the Mental Healthcare Act, 2017, including outpatient care, therapy and long psychiatric medication just as readily as physical illness. To achieve health equity, mental healthcare should be treated as basic treatment of fever or getting a regular blood test. If fever is covered without questions, then why not therapy? Taxation is only one piece, parity between mental health and physical health under the MHCA 2017, exists only on paper.

A study published in the Indian Journal of Psychological Medicine titled “Mental Health Insurance : An Examination of Policy Implementation Post – MHCA 2017” which evaluates 235 insurance policies provided by 30 insurance companies. The findings were troubling, 119 policies excluded coverage for mental illness, only 6 out of 30 health insurance providers cover alcohol and substance use disorders, outpatient services (consultations, therapies & diagnostics) were included by only a few and suicide and self harm were excluded by all policies. In India, 1,39,123 suicide deaths happened in 2019 (NCRB 2019).

This shows many people stop seeking mental health support despite health insurance on their name for support or even being exploited for not being aware about due diligence. In my experience at Saday, a Non-profit organisation where we work closely with communities on mental health, the alignment is missing. Rather than prolonged hospitalisation, people need more consultations with mental health professionals, long term medications and financial protection against arbitrary exclusions.

According to the National Mental Health Survey (2015-2016), 10.6% of adults currently living with mental disorders, 13.7% of the population had a lifetime prevalence of mental disorders, around 150 million Indians needed active interventions and 22.4% of the population aged 18+ suffered from substance use disorders. These numbers are alarming and show the reality of mental health in the country.

This is why the GST exemption on insurance premium is progressive, but cannot yet be seen as systemic change. Policies matter only if they cover what people most urgently need. The real parity should mandate OPD coverage (Consultation, therapy, diagnostics), removal of exclusions, awareness campaigns and integration of long term mental health care into insurance frameworks. Tax reforms and insurance reforms may sound technical. But, it should not be confined to rationalisation and simplification.

Moreover, an issue where stigma and discrimination always discourage the person to take the first step towards support, it addresses the psychological burden that India is facing currently. When financial relief eases the household budgets and insurance premium strengthens mental health, the benefits are beyond economic. It multiplies emotionally, socially and deeply with humans.

Taxation reform in combination with enforcement of insurance frameworks may bring powerful mental health outcomes. If India wants a stronger growth trajectory holistically, it must not only focus on fiscal health but also on mental health. The nation thrives best not on anxious households but on mentally healthier minds