The Fitment Committee comprising of centre and state revenue officials has reviewed the proposal to reduce the Goods and Services Tax (GST) on individual health insurance premiums but has stopped short of recommending an outright reduction.
After extensive deliberations, the committee has left the final decision to the GST Council, presenting them with various options based on potential revenue implications.
The proposal, initiated by the Department of Financial Services (DFS) under the Ministry of Finance, aims to make health insurance more affordable by lowering the GST rate from the current 18% to 5% without input tax credit (ITC).
In the fiscal year 2022-23, total health insurance premiums amounted to approximately Rs. 90,032 crore, with the individual health insurance segment contributing Rs. 35,300 crore. The current 18% GST rate generated Rs. 6,354 crore from individual health insurance premiums alone.
The Fitment Committee after careful analysis considered several options:
Exempting all individual health insurance premiums: This would result in a revenue loss of Rs. 3,495 crore.
Exempting premiums paid by senior citizens and those with coverage up to Rs. 5 lakhs: This would result in a revenue loss of Rs. 2,110 crore.
Exempting only premiums paid by senior citizens: This would result in a revenue loss of Rs. 645 crore.
Reducing the GST rate to 5% without ITC for all individual health insurance services: This would lead to a revenue loss of Rs. 1,730 crore.
Despite considering these scenarios, the committee refrained from making a specific recommendation, emphasizing the need for the GST Council to evaluate the options based on the broader financial and social implications.
The GST Council’s decision will be important in view of the recent protests by oppositions on the higher taxation on premiums. However, the potential revenue loss poses a challenge that the Council will have carefully weigh during its 54th council meeting scheduled on September 9 in New Delhi.