The government is moving closer to providing much-needed relief on health and term insurance premiums, as the Group of Ministers (GoM) has proposed to exempt GST on certain insurance premiums. This proposal, if approved, will particularly benefit senior citizens and policyholders with coverage up to Rs 5 lakh. The final decision will be taken in the next GST Council meeting scheduled for next month.
Key Proposal: No GST on Health Insurance Premiums
In a meeting held on Saturday, the GoM recommended that health insurance premiums up to Rs 5 lakh should be exempt from GST. Currently, policyholders pay 18% GST on both term insurance and health insurance premiums, regardless of the coverage amount. The proposed change would ease the financial burden on individuals, especially senior citizens, who are often more reliant on health insurance policies.
If the GST Council approves this recommendation, it will provide significant relief to families and individuals looking to manage healthcare costs, particularly those opting for policies within the Rs 5 lakh coverage range. However, those with coverage exceeding Rs 5 lakh would continue to be subject to the 18% GST charge.
Relief for Senior Citizens
The GoM has also prioritized senior citizens in its recommendations. Under the new proposal, senior citizens will not have to pay GST on health insurance premiums, regardless of the coverage amount. This decision, aimed at offering financial relief to older adults, comes in response to growing concerns about the rising costs of healthcare for the elderly.
Bihar Deputy Chief Minister Samrat Chaudhary, who is heading the GoM, confirmed that all members are focused on providing relief to the public. “Special attention should be given to senior citizens,” he emphasized during the meeting. The GoM will submit its recommendations to the GST Council next month, where the final decision will be taken.
Impact on Term Insurance and Family Floater Policies
While health insurance premiums may see some relief, the 18% GST will likely remain unchanged for term life insurance policies and family floater plans. This means that policyholders of these products will continue to pay GST on their premiums unless further amendments are made by the GST Council.
Background: From Service Tax to GST on Insurance
Prior to the implementation of GST in 2017, insurance premiums were subject to service tax. When GST was introduced, it subsumed the service tax, leading to the current 18% rate on insurance premiums. In the 2023-24 financial year alone, the government collected Rs 8,262.94 crore through GST on health insurance premiums, highlighting the significant revenue generated from this sector.
However, growing demands for relief on insurance premiums, particularly due to increasing healthcare costs, have led to discussions in Parliament. These conversations eventually led to the formation of the GoM, which has now recommended easing the GST burden for policyholders, especially those with lower coverage amounts.
Awaiting the Final Decision
The next GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, will bring together finance ministers from various states, including Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, and more, to make a final decision on the GoM’s recommendations. If approved, this change could offer significant financial relief for individuals across the country, particularly for senior citizens and those with moderate health insurance coverage.
The move has been widely welcomed, and if implemented, it will likely make health insurance more affordable for a broader section of the population, helping more people access essential healthcare services without the additional burden of GST.
