The GST Council may soon decide to provide tax relief on life and health insurance premiums. The Insurance Regulatory and Development Authority of India (IRDAI) has already submitted its recommendations, accelerating the final decision process. Currently, insurance premiums attract an 18% GST. With IRDAI’s suggestions now in place, the path for tax relief on insurance is becoming clearer. A ministerial group (GoM) will meet in April to discuss the matter, and the GST Council is expected to make a final decision in May. So far, all states have agreed to reduce GST on insurance.
Possible Changes
- Senior citizens may get GST exemptions on health insurance.
- Health insurance premiums up to ₹5 lakh may see a GST reduction to 5%.
- The removal of GST on term life insurance is also under consideration.
Concerns of Insurance Companies
Insurance companies prefer a system where they can benefit from Input Tax Credit (ITC) instead of a complete GST exemption. If term insurance becomes GST-free, companies may lose ITC benefits, increasing their operational costs. Eventually, these costs could be passed on to customers, making insurance more expensive.
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Why is Tax Reduction Important for the Insurance Sector?
India has a very low insurance penetration, currently only 3.7%. Reducing GST will make insurance more affordable and accessible, encouraging a larger population to get coverage.
What’s Next?
In April, a GoM meeting led by Bihar’s Deputy Chief Minister, Samrat Choudhary, will take place. The GST Council is expected to make a final decision by late May or early June. If both state and central governments agree, tax relief on health and life insurance will be implemented.