Call For Lower GST on Health, Life Insurance Policies Gets Irdai’s Support Ahead Of GST Council Meet

With the upcoming GST Council meeting scheduled to be held in Jaisalmer on December 21, the insurance industry has again made calls to lower GST on certain insurance policies. The Insurance Regulatory and Development Authority of India (Irdai) and the Financial Services Department have supported the proposal to make insurance more accessible for vulnerable groups such as senior citizens and low-income families.

A key agenda item for the council’s meeting could be the long-due restructuring of GST on insurance premiums. According to some media reports, a Group of Ministers (GoM) has already proposed exemptions on premiums for health insurance plans:

- Covering senior citizens

- Policies with coverage up to Rs 5 lakh

And term insurance premiums.

For other insurance products, the GoM has suggested maintaining the existing GST rates. Currently, health, term, and unit-linked insurance plans attract an 18 per cent GST rate.

Endowment plans are taxed differently, with around 4.5 per cent GST applicable on premiums in the first year and 2.25 per cent in subsequent years. Single-premium life insurance policies are taxed at 1.8 per cent with these rates applying uniformly across age groups.

Irdai’s Proposal For GST Reduction

Irdai, in a submission to a Parliamentary panel, has pointed out that several developed nations, including Canada and countries in the European Union, exempt insurance products from VAT (value-added tax) or GST.

The insurance regulator emphasised that India could benefit from adopting a similar approach to help with insurance penetration among different income groups and across remote areas.

Irdai highlighted the growing need for health insurance among Indian citizenry due to increased life expectancy and healthcare costs. To enable this, the regulator has supported and proposed GST exemptions for micro-insurance policies and senior citizen health plans.

Irdai has further argued that while medical services are GST-exempt, taxing premiums creates undue financial burden thereby limiting the reach of insurance penetration across the lenght and breadth of India.

Speaking of solutions, Irdai has recommended exempting GST for retail health policies for senior citizens, micro-insurance products, and term insurance policies up to a specified limit. Sharing the view, the Financial Services Department has also extended its support for the said changes.

In a written letter on November 25, Minister of State for Finance Pankaj Chaudhary, said that the GST Council has discussed reducing GST on life and health insurance during its September 9 meeting.

The matter was referred to a GoM for a detailed examination which held its first meeting on October 19 in New Delhi. It is expected that the GST exemption issue will be presented again to the GST Council soon.

Data shared by Finance Ministry shows that GST collection from insurance premiums amounted to over Rs 29,000 crore Out of this health insurance premiums alone accounted for around Rs 23,000 crore. Reinsurance premiums for life and health insurance contributed nearly Rs4,700 crore to the total.

In its previous recommendations, the Standing Committee on Finance highlighted the need to make insurance more affordable. The committee proposed reducing GST on health insurance policies for senior citizens, micro-insurance policies such as Pradhan Mantri Jan Arogya Yojana (PMJAY) with a coverage limit of Rs 5 lakh, and term insurance policies.

With the GST Council meeting around the corner, the insurance industry has again pinned its hopes on the proposed changes - reignited with the recent support from Irdai.