Proposal to Lower GST on Health Policies Gains Momentum

The Insurance Regulatory and Development Authority of India (IRDAI) and the Department of Financial Services (DFS) have voiced their support for a proposal to reduce Goods and Services Tax (GST) on health policies for senior citizens, micro-insurance, and term insurance. This initiative is expected to encourage insurance adoption, particularly among vulnerable sections of society.

Key Developments

GST Council Agenda

The upcoming GST Council meeting on December 21 in Jaisalmer is set to discuss rationalizing GST rates on insurance premiums.

  • The Group of Ministers (GoM) has already proposed exempting GST on premiums for senior citizens’ health policies, micro-insurance (up to ₹5 lakh), and term life insurance.

Current GST Rates on Insurance

Currently, GST rates on insurance premiums are as follows:

  • Health Insurance, Term Insurance, and Unit-Linked Insurance Plans (ULIPs): 18%.
  • Endowment Plans: 4.5% for the first year, 2.25% thereafter.
  • Single-Premium Annuity Policies: 1.8%.

International Practices

Globally, several countries, including those in the European Union and Canada, exempt insurance products from VAT/GST. This reinforces the argument for similar measures in India.

Arguments for GST Reduction

IRDAI Submission

The IRDAI has highlighted an inconsistency:

  • While medical services are GST-exempt, health insurance premiums attract an 18% GST rate.
  • This creates a financial burden, particularly for senior citizens and low-income groups.

Reducing or exempting GST on these policies, according to IRDAI, would significantly boost insurance penetration.

DFS Support

The DFS has further emphasized the importance of lowering GST rates to make insurance affordable for disadvantaged sections of society.

Recommendations from Parliamentary Committees

The Standing Committee on Finance has also supported GST reductions, specifically recommending:

  • Lower GST rates for health insurance policies targeting senior citizens.
  • Exemptions for micro-insurance plans with coverage up to ₹5 lakh under schemes like PMJAY (Pradhan Mantri Jan Arogya Yojana).

Financial Implications

GST Collections (2023-24)

  • Health Insurance Premiums: ₹23,000 crore.
  • Life and Health Re-Insurance Premiums: ₹4,700 crore.

Although reducing GST on insurance might lead to a short-term dip in tax collections, it would provide significant long-term benefits by making insurance more accessible to vulnerable populations.

Conclusion

The proposed reduction in GST on insurance policies aims to address financial barriers, improve healthcare adoption, and align India’s practices with global standards. If approved during the GST Council meeting on December 21, these changes could mark a transformative shift, making insurance policies more affordable and accessible for all.

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