Buyers May Not Benefit from Lower Insurance GST: Concerns Persist

States are preparing to address complaints about high GST rates on health and life insurance but face challenges in ensuring that reduced levies benefit consumers. Although lowering levies on life insurance seems straightforward, concerns about health insurance persist. State finance ministers are considering options to ease the burden on consumers. However, they worry that insurers may not pass on the benefits due to the lack of an antiprofiteering body.

Health insurance presents a pressing issue. The main concern is not just revenue loss but whether insurers will share the savings with policyholders. Insurers have raised premiums since the Covid pandemic, citing higher claims, but have not lowered them despite a decrease in Covid-related claims. They attribute this to ongoing adverse claims ratios and underwriting losses.

Previously, anti-profiteering provisions ensured that lower GST rates benefited consumers. With infrequent rate changes, these provisions have become inactive, raising concerns that reduced tax burdens on health insurance may not fully benefit consumers. The GST Council’s decision to make these provisions inactive has created a gap in consumer protection.

Officials have suggested that policies with annual premiums between Rs 50,000 and 60,000 should receive reduced GST rates. However, this may not significantly help the middle class, as many families pay premiums above Rs 50,000 for health coverage. Seniors, facing higher premiums due to increased risk, may find the measure inadequate.

Furthermore, arbitrary cut-offs for GST benefits could complicate the insurance tax structure, which was initially designed to avoid such complexities.

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