BackgroundDiabetes mellitus (DM) is a major public health concern in India, and entails a severe burden in terms of disability, death, and economic cost. This study examined the out‐of‐pocket health expenditure (OOPE) and financial burden associated with DM care in India.MethodsThe study used data from the latest round of the National Sample Survey on health, which covered 555,115 individuals from 113,823 households in India. In the present study, data of 1216 individuals who sought inpatient treatment and 6527 individuals who sought outpatient care for DM were analysed.ResultsIn India, 10.04 per 1000 persons reported having DM during the last 15 days before the survey date, varying from 6.94/1000 in rural areas to 17.45/1000 in urban areas. Nearly 38% of Indian households with diabetic members experienced catastrophic health expenditure (at the 10% threshold) and approximately 10% of DM‐affected households were pushed below the poverty line because of OOPE, irrespective of the type of care sought. 48.5% of households used distressed sources to finance the inpatient costs of DM. Medicines constituted one of the largest proportion of total health expenditure, regardless of the type of care sought or type of healthcare facility visited. The average monthly OOPE was over 4.5‐fold and 2.5‐fold higher for households who sought inpatient and outpatient care, respectively, from private health facilities, compared with those treated at public facilities. Notably, the financial burden was more severe for households residing in rural areas, those in lower economic quintiles, those belonging to marginalised social groups, and those using private health facilities.ConclusionThe burden of DM and its associated financial ramifications necessitate policy measures, such as prioritising health promotion and disease prevention strategies, strengthening public healthcare facilities, improved regulation of private healthcare providers, and bringing outpatient services under the purview of health insurance, to manage the diabetes epidemic and mitigate its financial impact.