The government is set to address a key issue that has been troubling policyholders for a long time—GST on insurance premiums. Currently, health and life insurance premiums attract an 18% Goods and Services Tax (GST). However, there is growing demand to either reduce or completely exempt these essential services from taxation. To resolve this matter, a Group of Ministers (GoM) is scheduled to meet on October 19 to discuss the potential reduction in GST on insurance premiums.
This move comes after the GST Council, in its recent meeting, decided to form a committee to evaluate the current tax structure and recommend changes. The GoM is expected to submit its report by the end of October, and the final decision will likely be made in November.
Who Is Heading the Group of Ministers?
The Group of Ministers responsible for deciding on the GST reduction is led by Bihar Deputy Chief Minister Samrat Chaudhary. The panel consists of 13 ministers representing various states, including Uttar Pradesh, West Bengal, Kerala, Rajasthan, Karnataka, Gujarat, and more.
The GoM’s role is crucial in determining whether the current tax structure for insurance premiums should be altered to provide relief to policyholders. With the rising costs of healthcare and life insurance, reducing the GST could significantly ease the financial burden on individuals and families.
Key Areas of Discussion: Health and Life Insurance
The terms of reference (TOR) for the GoM are broad. They will not only suggest changes to the GST rates on health and life insurance premiums but also examine different categories within these segments.
For health insurance, the panel will look into individual plans, family floater policies, group health insurance, and policies for senior citizens and people with mental illness. For life insurance, the GoM will explore the impact of GST on term insurance, life insurance with investment benefits, and group life insurance policies.
Some opposition-ruled states, like West Bengal, have demanded a complete exemption from GST on health and life insurance premiums, arguing that essential services should not be taxed. Other states have suggested reducing the GST rate to 5%, a significant drop from the current 18%.
Opposition and Government’s Stance
The debate on GST for insurance has sparked strong reactions from various political quarters. Union Transport Minister Nitin Gadkari had earlier written to Finance Minister Nirmala Sitharaman, criticizing the taxation of life insurance premiums. He argued that charging GST on life insurance is like taxing life’s uncertainties, making it unfair for policyholders.
Finance Minister Nirmala Sitharaman, responding to concerns raised in Parliament, highlighted that 75% of GST revenue is transferred to states. She advised opposition members to approach their state finance ministers to propose changes at the GST Council meetings.
GST Collection Data for FY 2023-24
In the financial year 2023-24, the central and state governments collected ₹8,262 crore through GST on insurance. Of this, ₹94 crore came from health insurance premiums, while ₹1,484.36 crore was collected through GST on reinsurance premiums. These figures reflect the sizable revenue generated from insurance services, but they also indicate the substantial burden on policyholders.
As the GoM prepares for its meeting on October 19, all eyes are on the potential outcomes that could affect millions of policyholders across the country. Whether the government decides to reduce GST or offer a complete exemption, this decision could provide much-needed relief in a challenging economic climate.
