GST burden on health insurance premiums may reduce

Ahead of the upcoming 54th GST Council meeting on September 9, there are reports that discussions may take place on reducing the Goods and Services Tax (GST) currently applied to life and health insurance premiums.

The council is expected to review recommendations from the fitment panel, which has been examining the 18% GST rate on insurance products, reported CNBC-TV18.

As per the report, one of the key proposals from the panel is to exempt pure-term individual life insurance policies and reinsurers from GST. Any reduction is expected to directly benefit consumers, with life insurance companies passing on the savings.

Meanwhile, the fitment panel has presented four potential options to reduce the GST burden on health insurance premiums. The most significant option suggests a complete exemption for health insurance premiums and reinsurers, which could result in a substantial revenue loss of Rs 3,500 crore.

Another option focuses on exempting premiums for senior citizens and policies with coverage up to Rs 5 lakh, carrying a potential revenue impact of Rs 2,100 crore. A more limited proposal suggests offering exemptions only on premiums paid by senior citizens, which would have a smaller revenue impact of Rs 650 crore.

Another option on the table is reducing the GST rate on all health insurance services to 5%, without the benefit of input tax credit (ITC), which could result in a Rs 1,750 crore loss for the government.

Despite these proposals, the fitment panel has not agreed on how to proceed with health insurance. The GST Council will make the final decision during its meeting on September 9, with insurance proposals expected to be a key part of the agenda.

The issue of high GST rates on health and life insurance premiums made headlines after Union Minister Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman. Not only Gadkari but several experts are in agreement that the GST rates on life and health insurance premiums should be reduced.