Finance Minister Nirmala Sitharaman said that the cost of insurance for policyholders is expected to decrease if the GST Council recommends reducing the GST rate on health and life insurance policies.
In a written response in the Lok Sabha on December 2, Sitharaman mentioned that during its meeting on September 9, the GST Council had proposed forming a Group of Ministers (GoM) to comprehensively address the issues related to GST on life and health insurance.
“The review of GST rates on life and health insurance is currently under consideration by the GoM. Should the GST Council suggest a reduction in the GST rate, the cost of insurance for policyholders is likely to decrease due to the lower GST,” she explained.
Sitharaman was responding to a question about whether reducing GST on health insurance would contribute to making healthcare more equitable.
Regarding how the government plans to ensure that insurance companies pass on the benefits of any GST reduction to consumers instead of retaining them through higher premiums, she emphasised that competitive pricing would naturally lead to lower insurance costs.
“Since GST is applied on top of the insurance premium, a reduction in the GST rate would directly benefit policyholders, particularly in a competitive market with numerous insurers, as the overall cost of insurance would decrease,” she said.
Currently, a GST rate of 18 percent is applied on premiums for life and health insurance policies.
The GST Council, chaired by Sitharaman and comprising state counterparts, is scheduled to meet on December 21, where the GoM’s report on reducing GST on life and health insurance is expected to be discussed.
In the 2023-24 fiscal year, the central and state governments collected Rs 16,398 crore in GST from healthcare and life insurance policies, with Rs 8,135 crore from life insurance and Rs 8,263 crore from health insurance. Additionally, Rs 2,045 crore was raised as GST from re-insurance on life and health insurance, including Rs 561 crore from life insurance re-insurance and Rs 1,484 crore from health insurance re-insurance.
The GST Council’s meeting on December 21, scheduled in Jaisalmer, will likely address the issue of GST on life and health insurance.
The GoM on life and health insurance, headed by Bihar Deputy Chief Minister Samrat Chaudhary, held its first meeting on October 19.
Sources indicate that the GoM has largely agreed to exempt GST on premiums paid for term life insurance policies and health insurance for senior citizens.
Additionally, premiums paid by individuals, excluding senior citizens, for health insurance policies covering up to Rs 5 lakh may also be exempt from GST. However, an 18 percent GST would continue to apply on premiums for policies covering health insurance exceeding Rs 5 lakh.
(With inputs from PTI)