GST Reduction on Insurance Policies: A Step Towards Affordability

The Indian government is evaluating the reduction of GST rates on life and health insurance policies. Finance Minister Nirmala Sitharaman addressed this in a written reply to the Lok Sabha, highlighting that a recommendation for GST reduction if approved by the GST Council, would directly benefit policyholders by reducing the cost of insurance. The GST Council had earlier constituted a Group of Ministers (GoM) to review GST rates on insurance. The council, chaired by Sitharaman and comprising state counterparts, will meet on December 21 to discuss the GoM’s findings.

Proposals Under Consideration

The GoM, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, held its first meeting on October 19 to deliberate on the GST implications for insurance policies. Preliminary discussions suggest the group has broadly agreed to exempt premiums paid for term life insurance and health insurance for senior citizens from GST.

In addition, the GoM has proposed GST exemptions for health insurance policies with coverage of up to ₹5 lakh for individuals other than senior citizens. However, policies offering coverage above ₹5 lakh are likely to retain the current 18% GST rate. These proposals aim to make insurance more accessible, particularly for vulnerable groups and low-coverage policyholders.

Implications of GST Reduction

In the 2023-24 fiscal year, GST collections from healthcare and life insurance policies amounted to ₹16,398 crore, with ₹8,135 crore from life insurance and ₹8,263 crore from health insurance. An additional ₹2,045 crore was collected from reinsurance. Competitive pricing in the insurance market is expected to ensure that GST reductions directly benefit policyholders.

Conclusion

The GST Council’s decision on December 21 will determine the future of GST rates on life and health insurance. A reduction could ease financial burdens on policyholders and improve insurance affordability across various segments.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.