The GST on insurance premiums is currently 18%. Many trade groups have asked the finance minister to reduce this to 5% because health premiums have greatly increased in the past five years, especially after COVID-19. This increase has made it hard for many people to renew their policies.
Potential Reduction in Insurance Premiums
The GST council, chaired by Finance Minister Ms. Nirmala Sitharaman and state finance ministers, is expected to discuss the exemption of term life insurance and health insurance from GST during its meeting scheduled for September 9, 2024. It is anticipated that pure protection-oriented insurance products such as term life and health insurance will be exempted from GST.
However, insurance products that combine protection with investment components, such as Unit Linked Insurance Plans (ULIPs) and endowment plans, are expected to remain subject to an 18% GST.
Government’s Response and Criticism
Despite these requests, the finance minister kept the GST rate at 18%, which is higher than in other countries. This decision was criticized, including by Mr. Nitin Gadkari, a cabinet minister. He said that taxing life insurance premiums is like taxing life’s uncertainties and that people should not be taxed for protecting their families.
Opposition and Committee Recommendations
Mr. Gadkari also mentioned that the 18% GST on health insurance is slowing down the growth of this important sector. He asked for the GST on health and life insurance to be removed, especially for senior citizens. Opposition leaders also wrote to the finance minister, asking for a review.
In February 2024, the Standing Committee on Finance recommended lowering the GST on health insurance, especially for senior citizens, small insurance policies, and term insurance policies.
Impact on Term Life and Health Insurance
Removing GST on term life insurance, which provides death benefits and financial security, will make premiums cheaper. This could attract more people to buy term life insurance, which is important for financial planning.
Similarly, removing GST on health insurance will encourage people to increase their coverage. This will be especially helpful for senior citizens and individuals, as it will lower health insurance premiums.
Benefits for the Insurance Industry
Overall, removing GST is expected to benefit the insurance industry. The percentage of insurance as part of GDP is expected to increase from around 4% now, helping to achieve the IRDA’s goal of “Insurance For All” by 2047. This move will help India catch up with other countries that have higher insurance coverage.
Financial Impact on the Government
Removing GST on term life and health insurance is expected to cost the government about Rs 3,500 crore in annual revenue. This is different from the past two years, where GST collected from life insurance premiums increased from Rs 5,354.28 crore in FY2021-22 to Rs 8,262.94 crore in FY2023-24. Similarly, GST from health insurance increased from Rs 825.95 crore in FY2021-22 to Rs 1,484.36 crore.
Conclusion
The government’s potential decision to eliminate the Goods and Services Tax (GST) on term life and health insurance policies is a significant and positive development for individuals and families. This step can potentially enhance the affordability and accessibility of these crucial forms of insurance, further promoting and safeguarding financial security and well-being for the populace.
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