Centre Proposes Scrapping GST On Life & Health Insurance Policies
Life and health insurance policies may not attract any Goods and Services Tax (GST) as the Centre has formally proposed an exemption as part of its tax reforms.
Mumbai:Life and health insurance policies may not attract any Goods and Services Tax (GST) as the Centre has formally proposed an exemption as part of its tax reforms. At present, insurance premiums attract 18 per cent GST.
"The Centre's proposal is clear that the insurance sector's individual and family (policies) should be exempt from GST. This has been discussed and the GoM report will be presented to the GST Council for approval,” Bihar Deputy Chief Minister and convenor of the Group of Ministers (GoM) on insurance Samrat Choudhary told reporters after the meeting of the GoM. However, some states have expressed differing views on the insurance proposal, Choudhary said, who is the convenor of the 13-member state GoM on health and life insurance.
The panel includes finance ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu and Telangana. The GoM, set up in September, is preparing its report for the GST Council, which will take a final call on rates. The report will include views and concerns expressed by some state finance ministers, he said.
The Centre’s proposal is part of a broader next-generation GST reform plan that envisages just two rates--5 per cent for merit goods and 18 per cent for standard goods and services. In 2023-24, GST collections on health insurance premium stood at Rs 8,262.94 crore, while Rs 1,484.36 crore was collected on health reinsurance premium.
According to reports, Telangana has proposed that the insurance GST be brought down to zero, said its Deputy Chief Minister and Finance Minister Mallu Bhatti Vikramarka. He added that the benefit of GST exemption has to be fully passed to policyholders and not to the companies. According to reports, the proposed changes could result in a revenue loss of Rs 9700 crore for Telangana.
During the meeting, Finance Minister Nirmala Sitharaman also interacted with various GoMs formed by the GST Council. These included groups working on compensation cess, rate rationalisation, and taxation of health and life insurance, all part of the broader effort to revamp the indirect tax system.
Insurance companies are opposing nil GST on insurance products arguing that an inverted duty structure, leads to accumulation of unutilised input tax credits, as insurers are unable to offset taxes paid on many input services that attract higher GST rates. This mismatch increases operational costs and creates financial inefficiencies, limiting the overall benefit of a GST reduction. “Unless this anomaly is addressed, insurers may continue to face pressure on margins even as customers gain from lower premiums,” said a chief executive officer of a private insurer.
