Policyholders May Benefit from GST Rate Cut on Insurance
Finance Minister Nirmala Sitharaman announced that policyholders could experience significant benefits from a reduction in GST rates on insurance premiums. Speaking in Parliament ahead of the GST Council meeting scheduled in three weeks, she highlighted that lower GST rates would directly reduce the cost of insurance in a competitive market.
Key Proposals Under Discussion
- Elimination of GST on Term Life Insurance
The ministerial panel led by Bihar Deputy CM Samrat Chaudhary is exploring the removal of GST on term life insurance policies.
- GST Exemption for Health Insurance Covers
Proposals include exempting health insurance policies up to ₹5 lakh, especially those purchased by senior citizens.
Current GST Impact on Insurance
Tax Rate: Insurance premiums are taxed at 18% GST.
Revenue: During 2023-24, the Centre and states collected ₹16,398 crore in GST from health and life insurance premiums, with the revenue split equally.
Policyholders’ Concerns: The high GST rate has caused dissatisfaction, becoming a political issue addressed by leaders such as Transport Minister Nitin Gadkari and political parties like the Congress and TMC.
Post-Covid Surge in Health Insurance
The pandemic led to a significant rise in health insurance purchases by senior citizens:
2019-20: Under 3 lakh seniors bought health insurance policies of ₹5 lakh.
2023-24: Over 9 lakh senior citizens purchased similar coverage.
Government’s Assurance on Fair Premiums
Insurance Regulator IRDAI has issued guidelines to ensure that premiums remain “fair” and not “exorbitantly high,” according to Minister of State for Finance Pankaj Chaudhary.
Potential Impact of GST Rate Reduction
- Lower Costs: Policyholders may benefit from reduced premiums if insurers pass on the savings.
- Enhanced Affordability: GST exemptions or cuts could make term life and health insurance more accessible, particularly for senior citizens and low-income groups.
- Increased Adoption: A reduction in GST could encourage more individuals to purchase insurance, further boosting the sector.
Conclusion
The proposed GST rate cuts on insurance premiums could provide much-needed financial relief to policyholders, especially in light of the increasing demand for health and life insurance post-Covid. The final decision by the GST Council could set a precedent for making essential financial products more affordable and accessible to the masses.
