 "GST council meeting")
The panel is said to have left the final decision to the Council | File image
The all-powerful Goods and Services Tax (GST) Council, in its upcoming meeting on Monday, might decide on the tax treatment of life and health insurance following a request from the Department of Financial Services (DFS) seeking a reduction in tax rates.
The Council-nominated fitment panel is expected to submit its detailed report, outlining four options, including full exemption for all health insurance premiums and reinsurers, and reducing the GST rate to 5 per cent from the current 18 per cent on health insurance services, officials familiar with the report told Business Standard.
The other two options include exempting senior citizens’ premiums and premiums with coverage up to Rs 5 lakh, or exempting only premiums already paid by senior citizens.
These four options may cost the exchequer Rs 3,500 crore, Rs 1,750 crore, Rs 2,100 crore, and Rs 650 crore, respectively.
The panel is said to have left the final decision to the Council.
Regarding the proposal to exempt GST on life insurance premiums, the panel recommended exemption only for pure-term individual life policies and reinsurers.
This would have a revenue impact of Rs 213 crore on the exchequer.
However, the panel emphasised that any reduction in life insurance taxes should only be granted if insurance companies pass the benefits on to policyholders.
Citing FY23 data from the DFS, the panel noted that total health insurance premiums in India amounted to approximately Rs 90,032 crore. Of this, the individual health insurance segment contributed Rs 35,300 crore (39.21 per cent of total health premiums). GST amounting to Rs 6,354 crore was collected on individual health insurance premiums at the current rate of 18 per cent.
In its request for a GST reduction, the DFS, a department under the finance ministry, argued that reducing the tax rate would address the low penetration of health insurance in India by lowering premium costs, encouraging more people to purchase health insurance and opt for higher coverage.
The key benefits include making health premiums more affordable, enabling individuals to choose higher coverage levels with the tax reduction, and expanding insurance access.
The DFS believes that the anticipated increase in the number of insured individuals will offset the initial reduction in GST revenue. This move supports the central government’s efforts to provide a minimum social coverage net for every citizen and aligns with the vision of “Insurance for All” by 2047.
During her reply to the amendments of the Finance Bill 2024 on August 7, Finance Minister Nirmala Sitharaman stated, “I want to raise two important points—tax has been there on medical insurance even before the introduction of GST. There was already a pre-GST tax on medical insurance before GST was introduced. This is not a new issue; it was already there in all the states.”
First Published: Sep 05 2024 | 3:03 PM IS