There is good news for those who have health and life insurance policies. In the upcoming GST Council meeting scheduled for 9th September in Delhi, there is a strong possibility that the GST on health and life insurance premiums could be reduced from the current 18% to 5%. However, this reduction might only apply to insurance policies with an annual premium of up to ₹50,000.
Key Proposals and Expected Outcomes
- GST Reduction on Term Insurance:
- The GST rate on term insurance may be reduced to 5%, making insurance policies more affordable for consumers.
- Impact on Health Insurance GST:
- If the GST on health insurance is completely removed, it is estimated that the GST collection would decrease by around ₹3,500 crore annually.
- Relief for Senior Citizens:
- If the GST rate for senior citizens with coverage up to ₹5 lakh is reduced to 5%, the annual GST collection would decrease by ₹1,700-1,750 crore.
- If senior citizens paying their own premiums are exempt from GST, the annual GST collection could reduce by ₹600-650 crore.
Government’s Approach
For a long time, there has been a demand to reduce the high GST rates on insurance premiums. The opposition parties have also been urging the government to reduce or remove GST from insurance premiums, arguing that it’s unfair to levy such high taxes on individuals trying to secure their futures through insurance.
The Finance Ministry, through the Department of Financial Services, is also in favor of making health and life insurance more affordable. The government believes that lowering the tax burden on insurance policies will encourage more people to opt for insurance, thus broadening the coverage across the country.
GST Council’s Focus
Apart from reducing the GST on insurance, the GST Council will also discuss other topics, including the rationalization of GST rates across various sectors. According to Union Finance Minister Nirmala Sitharaman, while there have been no conflicts between the central and state governments regarding GST, there is a focus on simplifying tax compliance rather than solely focusing on increasing revenue.
Insurance Industry Insights
In the financial year 2022-23, more than ₹90,032 crore in health insurance premiums were collected, with approximately ₹35,000 crore coming from single-category health insurance policies, where only one individual is covered. With more people opting for health and life insurance policies, this potential GST cut is expected to provide significant relief to policyholders.
Summary of Expected GST Impact
| Proposal | Estimated Impact on GST Collection |
|---|---|
| Reduction of GST on term insurance to 5% | Significant relief for consumers |
| Complete removal of GST from health insurance | Loss of ₹3,500 crore in GST collection |
| Reduction of GST for senior citizens (coverage up to ₹5 lakh) to 5% | Loss of ₹1,700-1,750 crore in GST collection |
| Removal of GST for self-paid premiums by senior citizens | Loss of ₹600-650 crore in GST collection |
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