GST rates: The Goods and Services Tax on health and life insurance premiums has been making headlines for quite some time. According to a report by CNBC-Awaaz on August 8, sources familiar with the matter have suggested that a reduction in the GST rate on the premium paid for health and life insurance might be on the cards. The proposal, which has been forwarded to the GST rate rationalisation committee, has recommended a uniform 5% GST rate on these premiums.
This rate is notably lower than the existing 18% slab. The sources further revealed that the committee overseeing GST rates is not inclined towards completely exempting premiums from GST.
The GST regime was implemented on July 1, 2017, as a replacement for various indirect taxes like service tax and cess. Presently, the GST rate imposed on health and life insurance policies stands at 18%. This alteration, encompassing the previous service tax applicable to the insurance sector, has culminated in escalated premium expenses for policyholders.
Under the former structure, life insurance premiums attracted a 15% service tax, inclusive of Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess. The shift from the 15% service tax to the fixed 18% rate under GST has directly impacted policyholders by augmenting their premium outlays.
The GST on insurance premium made headlines after Road and transport minister Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman to roll back the current indirect tax. “You are requested to consider the suggestion of withdrawal of GST on life and medical insurance premium on priority as it becomes cumbersome for the senior citizens,” Gadkari said in his letter dated July 28.
Later, the INDIA bloc parties held protests inside the Parliament demanding a reduction in the 18% GST on insurance premiums, leading to the Makar Dwar of Parliament.
On August 7, Finance Minister Nirmala Sitharaman told Lok Sabha that the government will raise the issue of relaxation of GST with the GST Council soon.
“Several suggestions have come up and I shall take up with the GST council,” FM Sitharaman said on Wednesday.
Talking about the GST in insurance premiums, Sitharaman said, “I want to raise two important points – tax has been there on medical insurance even before the introduction of GST. There was already a pre-GST tax on medical insurance, before the GST was introduced. This is not a new issue, it was already there in all the states. Those protesting here… did they discuss regarding the removal of this tax in their states?”
Sharing insights on the distribution of the 18% premium collected from GST on health, FM Sitharaman stated that an equal 9% share is allocated to both the states and the Central government. She clarified that out of the 9% share allotted to the Center, 41% is further directed to the states under the provisions of the GST regime. This results in a cumulative 73-74% of GST revenues derived from premiums, as per her explanation.
Highlighting specific figures, FM Sitharaman emphasized that an amount totaling Rs 12,264 crore collected from the GST imposed on life and medical insurance was disbursed to the states.
In a separate communication, the Central government disclosed that approximately Rs 24,000 crore was amassed from the GST levied on health and life insurance during the preceding three fiscal years. Additionally, Rs 3,274 crore was received from the renewal of health policies.