The Indian government is considering reducing the Goods and Services Tax (GST) on life and health insurance premiums from the current 18%. This move aims to make insurance policies more affordable and increase penetration across the country. However, it comes with a potential annual revenue loss of ₹2,600 crore.
Impact on Government Revenue
The proposed reduction in GST on insurance premiums could significantly impact government revenue:
- Health Insurance: Reducing or exempting GST on health insurance is estimated to result in a revenue loss of ₹3,500 crore annually.
- Life Insurance : During the fiscal year 2023–2024, the total amount of GST collected from life and health insurance plans was ₹16,398 crore.How Policyholders Will Benefit
The reduction in GST will directly reduce the cost of insurance premiums, making them more accessible:
- For example, on a health insurance premium of ₹10,000:
- At 18% GST: The total premium is ₹11,800.
- At 12% GST: The premium reduces to ₹11,200, saving ₹600.
- At 5% GST: The premium further drops to ₹10,500, saving ₹1,300.
These savings can make a significant difference, especially for middle-class families.
Challenges for the Insurance Industry
While policyholders benefit, the insurance industry could face challenges:
- Currently, insurers benefit from Input Tax Credits (ITC) under the 18% GST regime.
- A reduction in GST without provisions for ITC could increase operational costs, potentially affecting insurers’ profitability.
To ensure policyholders receive the full benefits, the government must address these industry concerns.
Current Status of the Proposal
The GST Council, led by Finance Minister Nirmala Sitharaman, is set to discuss this proposal on December 21, 2024. A panel of ministers is reviewing the issue and will submit recommendations before the Council takes a final decision.
Conclusion
The proposed GST relief on life and health insurance is a positive step toward making insurance more affordable for the common man. However, it comes with challenges for government revenue and the insurance industry. The balance between affordability and fiscal responsibility will be key to the success of this initiative.
