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GoM proposes GST cuts for health insurance, exemption for term policies

Also recommends reduction of rate on individual health covers from 18% to 5%

GST

Harsh Kumar Jaisalmer

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A Group of Ministers (GoM), led by Bihar's Deputy Chief Minister Samrat Chaudhary, has recommended full goods and services tax (GST) exemption on pure term life insurance policies and a reduction in the GST rate on individual health insurance premiums to 5 per cent from 18 per cent at present, a government official said requesting anonymity. 
The GoM has submitted its report to the GST Council, which is expected to discuss it during the Council’s upcoming meeting scheduled for December 21. 
Other recommendations of the GoM include an exemption for health insurance aimed at senior citizens. However, the GoM has proposed no changes for other insurance products, such as Unit Linked Insurance Plans (ULIPs), the official said. 
 
On December 2, Finance Minister Nirmala Sitharaman had informed the Lok Sabha that any reduction in GST rates on life and health insurance premiums would likely benefit policyholders, especially in a competitive market. 
She explained that lower GST rates would reduce the overall cost of insurance for consumers. As it stands, the GST on health, term, and ULIPs is 18 per cent, while endowment policies are subject to a tiered GST rate — 4.5 per cent for premiums in the first year, and 2.25 per cent for subsequent years. Single premium annuity policies attract a GST of 1.8 per cent. 
The push for rationalising GST on insurance has gained momentum, with both the Financial Services Department and the Insurance Regulatory and Development Authority of India (Irdai) backing the proposal. In a submission to a parliamentary panel, the Irdai highlighted that several developed countries, including those in the European Union and Canada, have exempted insurance products from VAT (value-added tax), or GST. This, they argued, makes a strong case for similar benefits in India to promote greater insurance coverage. 
The regulator also emphasised the need for more accessible health insurance due to increasing life expectancy and healthcare requirements. 
In particular, the Irdai proposed extending GST exemptions to micro-insurance policies, senior citizen health insurance, and term life insurance policies up to a certain limit, as this would benefit vulnerable sections of society. 
The inconsistency, where medical services are GST-exempt while insurance premiums are taxed, was noted as an unfair burden. The Financial Services Department has also expressed support for reducing GST on health insurance products, particularly for senior citizens, micro-insurance policies (up to the prescribed limit under the Pradhan Mantri Jan Arogya Yojana, currently Rs 5 lakh), and term life insurance.
   

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First Published: Dec 19 2024 | 12:03 AM IST

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