The GST Council, led by Finance Minister Nirmala Sitharaman, is set to meet on Monday to tackle several pressing issues, with the spotlight on reducing the 18% GST on health and life insurance premiums.
While there is growing support for lowering the tax burden, concerns remain over whether the benefits will actually reach policyholders or stay with the insurance companies.
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One of the key worries is that even if GST is cut, insurers may keep the financial benefits instead of passing them on to consumers.
Companies have raised premiums post-COVID, citing higher claims, and many state ministers fear this practice will continue even if GST is reduced. With anti-profiteering laws no longer active, there’s little guarantee that a tax cut will translate into lower premiums for policyholders.
One proposal under discussion is to provide tax relief for insurance policies with annual premiums between ₹50,000 and ₹60,000. However, this may not significantly help most middle-class families.
A typical family of four often pays around ₹50,000 for a health insurance policy with a ₹15 lakh cover, which can still be insufficient in the event of a serious illness. For senior citizens, premiums are even higher due to age and health risks, making broad-based relief critical.
Moreover, setting such caps for tax benefits could complicate the GST system, which was originally intended to simplify taxation. Any new cut-offs may introduce complexities that the system was designed to avoid.
State governments are also wary of the revenue loss that may come with a GST reduction on health insurance. Last fiscal year, over ₹8,200 crore was collected from health insurance premiums alone, with states receiving half of that revenue.
A tax cut could lead to a substantial shortfall, especially since states no longer receive compensation from the Centre for GST revenue losses.
The Council will also review the impact of the recently implemented 28% GST on online gaming and continue its efforts against fake GST registrations, which have already uncovered over ₹24,000 crore in suspected tax evasion.
As the Council deliberates these issues, the challenge remains ensuring that any tax cuts benefit consumers rather than being absorbed by companies, while balancing the need for revenue preservation at the state level.