Despite considerable interest from the middle class, which stands to benefit from potential tax cuts, states such as West Bengal, Kerala, and Karnataka are not on board with the proposal to reduce the GST rate on term insurance from 18% to 5% and make similar cuts for health insurance premiums.
The issue, which was initially assigned to a Group of Ministers (GoM) led by Bihar’s Deputy Chief Minister Samrat Chaudhary, has failed to gain the necessary support from states, mainly due to concerns over revenue losses. The GoM had suggested slashing the rates as a means to ease financial burdens on consumers, but states remain wary of the financial implications.
The Centre, along with state counterparts, generated Rs 16,400 crore in GST revenue from life and health insurance in the 2023-24 fiscal year, a slight decrease from the previous year. Lowering the tax rates could have resulted in an estimated annual revenue loss of Rs 2,500 crore, further complicating the issue for states, especially after the compensation cess was withdrawn, which previously helped cover any gaps in revenue.
One of the primary concerns raised by states is the potential loss of revenue, with the Centre yet to clarify how the benefits of reduced taxes would be passed on to consumers. Finance Minister Nirmala Sitharaman has previously suggested that market forces would regulate this, now that the anti-profiteering clause has been done away with.
Meanwhile, the GST Council is also expected to address the issue of rationalizing tax rates for 148 items, a topic that has generated concerns from multiple states.Other issues on the agenda include the taxation of food delivery services, tax cuts for cancer therapy, and clarifications on sponsorships and Floor Space Index (FSI) regulations.
(With inputs from ToI)