FM Sitharaman to Discuss Removal of 18% GST on Life and Health Insurance with GST Council
By: Admin|August 08, 2024|Categories: GST Recent News
Introduction
In a recent discussion regarding the amendments to the Finance Bill 2024, Finance Minister Nirmala Sitharaman tackled the contentious issue of the 18% Goods and Services Tax (GST) imposed on life and health insurance premiums. This tax, seen as a significant financial burden for policyholders, has sparked protests and debates across the political spectrum. Sitharaman’s statements highlight the historical context of the tax, the impact on consumers, and the role of state governments in the GST framework.
Historical Context of Insurance Taxation
During her address, Sitharaman pointed out that the taxation of medical insurance predates the introduction of GST in India. Taxes on insurance premiums have long been a part of the financial landscape, and Sitharaman emphasized that this is not a recent concern. She called into question whether those who are currently protesting the GST on insurance have raised the issue within their respective states, suggesting that accountability and dialogue at the state level are critical components of the discussion.
The Burden of 18% GST on Policyholders
The 18% GST on life and health insurance premiums is a heavy financial burden for many individuals, discouraging them from obtaining or increasing their coverage. Insurance is designed to provide financial security during critical life events such as death or hospitalization. However, policyholders often find themselves paying substantial premiums alongside high taxes without guaranteed benefits in return. Over the past three financial years, approximately Rs 24,000 crore has been collected from GST on health and life insurance, with a significant portion—around 73-74%—going to state governments.
State Representation in the GST Council
Sitharaman underscored that state governments play a crucial role in the GST Council, which holds the authority to make decisions regarding tax rates, including those related to insurance. This representation means that states have a voice in the discussion surrounding the 18% GST, and Sitharaman pledged to bring the issue up with the Council. The active involvement of states in this dialogue is essential for finding a balanced solution that addresses the concerns of policyholders while respecting the fiscal responsibilities of state governments.
Political Responses and Public Sentiment
The 18% GST on insurance premiums has not only drawn criticism from the insurance industry but has also prompted political action. Recent protests led by the political parties within the INDIA bloc have called for the withdrawal of this tax outside the Parliament. Union Minister Nitin Gadkari also expressed his concerns, writing to Sitharaman to advocate for the rollback of the 18% GST. He articulated that this tax effectively taxes life’s uncertainties, a sentiment echoed by West Bengal Chief Minister Mamata Banerjee, who argued that the GST exacerbates financial burdens on the public and deters individuals from obtaining or maintaining insurance coverage.
Insurance as a Basic Necessity
The insurance industry contends that insurance should be viewed as a basic necessity rather than a luxury. This perspective is gaining traction among experts who believe that the 18% GST rate is disproportionately high for a product designed to provide financial protection. Insurance not only supports individuals during emergencies but also plays a vital role in promoting long-term financial stability. Lowering the GST rate on insurance premiums would make coverage more affordable and accessible to a larger segment of the population, aligning with the government’s goal of achieving “Insurance for All by 2047.”
Impact of Rising Premiums on Consumers
Data from the Ministry of Finance indicates that Rs 24,500 crore has been collected from GST on health insurance premiums over the past three years. Despite exemptions for specific insurance schemes, the overall rising costs of premiums necessitate a reconsideration of taxing insurance. A survey published in May 2024 revealed that a significant number of respondents experienced premium increases, with over half reporting hikes of more than 25%. Alarmingly, 21% reported increases of 50% or more, highlighting the urgent need for reform.
Health Insurance as a Public Good
Experts argue that reducing the 18% GST on insurance is vital, as health insurance serves a critical public good. Even individuals in the highest income brackets are susceptible to catastrophic health expenses, which can threaten their economic stability and, by extension, their contributions to the economy. By ensuring that insurance remains affordable, the government can foster a healthier population, ultimately benefiting society as a whole.
Clarifying the Role of the Central Government
Amit Malviya of the BJP clarified that while the central government is aware of the concerns surrounding the 18% GST, it cannot unilaterally reduce GST rates on health insurance. Such decisions rest with the GST Council, where state governments hold considerable influence. This illustrates the complex interplay between state and central authorities in shaping tax policy and underscores the importance of collaborative dialogue in addressing these issues.
Conclusion
The ongoing discussions surrounding the 18% GST on life and health insurance premiums are critical for both policyholders and the broader insurance industry. As Finance Minister Nirmala Sitharaman prepares to bring this issue before the GST Council, stakeholders must engage in constructive dialogue to explore potential solutions. Lowering the GST on insurance could enhance accessibility and affordability, aligning with the government’s vision for a more inclusive insurance framework. The outcome of these discussions will not only impact policyholders but also shape the future of the insurance landscape in India.
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