GoM on Life & Health Insurance pitches for full GST exemption on premiums
Some panel members suggests reduction of GST to 5% from current 18% on life Insurance premium
The Group of Ministers (GoM) on life and health insurance has discussed four options regarding tax treatment on premiums paid towards both policies, at its meeting in New Delhi on Saturday. At present, 18% GST levied on life and health insurance premiums.
Most of the panel members of the GoM led by Bihar Deputy Chief Minister Samrat Chaudhary pitched for “full exemption” on both the policies premiums, according to people aware of the developments. While a few panel members suggested to reduce the rate to 5% from current 18% on life insurance without input tax credit.
The ministerial panel to submit its recommendation to GST Council by October 31. Final call to be taken by the Council when it meet next.
The all-powerful Council has taken up the matter, in the Sep Council meeting, following the huge political debate over the 18% GST levied on life and health insurance premiums. Several political leaders, including Union Minister of Road Transport and Highways Nitin Gadkari, requested Finance Minister Nirmala Sitharaman to remove the GST.
The panel learnt to have discussed the revenue implication in various options suggested by Fitment Panel—comprising revenue officials of centre and states.
Some of the options including a full exemption for all health insurance premiums and reinsurance, or a reduction in the GST rate from 18 per cent to 5 per cent on health insurance services.
Other options discussed includes exempting premiums paid by senior citizens and premiums with coverage up to Rs 5 lakh, or alternatively, only exempting premiums paid by senior citizens from GST ambit.
These proposals could have different financial implications: Rs 3,495 crore, Rs 1,730 crore, Rs 2,110 crore, and Rs 645 crore, respectively.
On life insurance premium, the fitment panel has recommended limiting the exemption to pure-term individual life policies and reinsurers, which could cost Rs 210 crore to exchequer.
An internal estimates suggest that total health insurance premiums in India during FY23 were Rs 90,032 crore, with the individual health insurance segment accounting for Rs 35,300 crore. The government collected Rs 6,354 crore on individual health insurance premiums.
"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," Union Finance Minister Nirmala Sitharaman stated in her reply to the amendments to the Finance Bill, 2024, on August 7.
