GST Council defers decision on tax rates for health, life insurance premiums – What we know so far – Money News

The GST Council on December 21 again deferred a decision to exempt and cut taxes on health and life insurance premiums. The reason for this is that the ministers’ panel needs more time to reach a consensus on the matter.

“Some members said more discussions required. We (GoM) will meet in January again,” Bihar Deputy CM Samrat Chaudhary told reporters after the GST Council meeting.

A Group of Ministers (GOM) set up by the Council under Chaudhary, in its meeting in November had agreed on exempting insurance premiums paid for term life insurance policies from GST.

Also premium paid by senior citizens towards health insurance cover has been proposed to be exempted from the tax.

Besides, premiums paid by individuals, other than senior citizens, for health insurance with coverage of up to Rs 5 lakh is proposed to be levied a GST of 5%.

However, 18% GST will continue on premiums paid for policies with health insurance cover of over Rs 5 lakh.

Finance Minister Nirmala Sitharaman said during a briefing after the GST Council meeting, “The GoM on health insurance related GST work requires more time as IRDAI’s inputs are awaited. GoM on insurance has discussed relief on health, life insurance in detail. But after getting IRDAI’s inputs the GoM will finalise report.”

Also read: Higher GST on sin goods to offset losses from insurance

It is expected that passing on the GST relief to consumers through cheaper insurance policies will increase policy sales, which could offset the revenue loss due to the sector’s demand elasticity.

On the development, MS Mani, Partner, Deloitte India, said, “While there is now an inevitable delay in the decision-making for health and term insurance, insurance companies, brokers and consumers would expect that the final decision in the next meeting takes into account specific situations such as group policies with varying insurance coverage levels for employees, family floater health cover where some members may be senior citizens etc.”

It is also necessary to have reasonable limits for the possible lower rates, considering the significant increases in healthcare costs, Mani added.

Experts are of the view that GST rationalisation on health and life insurance premiums would alleviate financial burdens on consumers, reduce out-of-pocket healthcare expenses, and provide better financial protection against unexpected medical costs. For insurers, it would expand the customer base and diversify risk pools.

Mohit Gupta, Co-founder at Bimapay Finsure, said, “The delay of the GST reduce on health and life insurance, while understandable from a policy sense, creates substantial issues for millions of Indians. Insurance is more than a financial commodity; it is a lifeline that protects families from unexpected health emergencies and financial difficulties. By retaining the present tax rate, there is a risk that vital health and life insurance will stay out of reach for a portion of the population that requires it the most.”

Reducing the GST on insurance premiums would have made them more affordable, encouraging more people to purchase coverage and boosting the country’s overall financial stability, he added. “This is especially important in tier 2 and tier 3 cities, where disposable incomes are smaller and comprehensive health and life insurance is required. For many families, even a small reduction in premium prices might spell the difference between getting insurance and staying uninsured.”

Some believe that the GST reduction offers relief to the middle class, but completely removing it may not be feasible due to potential revenue loss and challenges for insurers, making a balanced approach the best solution.

Pankaj Nawani, CEO, of CarePal Secure, said, “GST reduction is a great step towards giving some relief to the middle class who don’t have any social security net. However, doing away completely with GST might also not be feasible not only on account of revenue loss for the government but also input the tax credit problems it might create for insurers. Hence, a middle way that satisfies all the stakeholders could be the best way forward.”

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}