The GST Council is set to examine potential adjustments to the Goods and Services Tax (GST) rates on life and health insurance premiums in its upcoming 54th meeting scheduled for September 9. Reports indicate that the council will review recommendations from the fitment panel concerning the current 18% GST rate applied to these insurance products.
According to CNBC-TV18, the fitment panel has proposed significant changes. One major recommendation includes exempting pure-term individual life insurance policies and reinsurers from GST. If implemented, this could lead to a revenue reduction of approximately Rs 213 crore for the government.
This potential reduction in GST is anticipated to benefit consumers directly, as life insurance companies are likely to pass on the cost savings.
In addition, the fitment panel has outlined four possible strategies to alleviate the GST burden on health insurance premiums:
Complete Exemption: The most substantial proposal suggests a full exemption of GST on health insurance premiums and reinsurers, which could result in a significant revenue loss of Rs 3,500 crore.
Targeted Exemption: Another option proposes exempting premiums for senior citizens and policies with coverage up to Rs 5 lakh, with an estimated revenue impact of Rs 2,100 crore.
Limited Exemption: A more restricted proposal suggests offering exemptions solely for premiums paid by senior citizens, which would lead to a smaller revenue impact of Rs 650 crore.
Rate Reduction: An alternative option involves reducing the GST rate on all health insurance services to 5%, though this would eliminate the benefit of input tax credit (ITC) and could result in a revenue loss of Rs 1,750 crore.
The fitment panel has yet to reach a consensus on the preferred approach to adjust GST rates on health insurance. The GST Council’s decision on these proposals will be a key agenda item in the upcoming meeting.
The debate over high GST rates on insurance premiums gained momentum following a letter from Union Minister Nitin Gadkari to Finance Minister Nirmala Sitharaman. In his correspondence, Gadkari expressed concerns that taxing insurance premiums effectively means “taxing life’s uncertainties,” which he argued stifles the growth of the insurance sector. He urged the government to consider the long-term advantages of reducing GST on these essential services.
