Ahead of the upcoming 54th GST Council meeting on September 9, reports suggest that discussions may focus on reducing the Goods and Services Tax (GST) applied to life and health insurance premiums.
The council is expected to review recommendations from the fitment panel, which has been analyzing the current 18% GST rate on insurance products, according to CNBC-TV18.
One key proposal from the panel suggests exempting pure-term individual life insurance policies and reinsurers from GST. If this change is approved, it could reduce government revenue by approximately Rs 213 crore. Consumers are likely to benefit directly from the reduction, as life insurance companies are expected to pass on the savings.
For health insurance premiums, the fitment panel has presented four options to reduce the GST burden. The most significant proposal suggests a complete exemption for health insurance premiums and reinsurers, which could result in a revenue loss of Rs 3,500 crore. Another option focuses on exempting premiums for senior citizens and policies with coverage up to Rs 5 lakh, with a potential revenue impact of Rs 2,100 crore. A more limited proposal suggests offering exemptions only for senior citizens’ premiums, with a smaller revenue impact of Rs 650 crore.
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Alternatively, the panel has considered reducing the GST rate on all health insurance services to 5%, without the benefit of input tax credit (ITC), which could lead to a Rs 1,750 crore loss for the government.
Despite these options, the fitment panel has not reached a consensus on how to move forward with health insurance. The final decision will be made by the GST Council during its meeting on September 9, where insurance proposals are expected to be a major point of discussion.
Concerns over high GST rates on life and health insurance premiums gained attention after Union Minister Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman. In his letter, Gadkari argued that taxing insurance premiums is akin to “taxing life’s uncertainties” and hinders the growth of the insurance sector. He urged the government to consider the long-term benefits of reducing the GST burden on such essential services.
Many experts agree that GST rates on life and health insurance premiums should be reduced to support the sector’s growth.