The GST Council in its upcoming meeting may completely remove the 18% tax on term insurance plans. The Council will also consider eliminating the tax on health insurance for senior citizens and those buying coverage up to Rs 5 lakh.
However, broader changes to GST rates for other goods and services are unlikely at this meeting. Several states, including Kerala and West Bengal, are concerned about potential revenue loss if taxes are lowered. Most non-NDA governed states opposed reducing the GST rate slabs from four to three. Currently, goods and services are taxed at rates of 5%, 12%, 18%, and 28%, with the 18% and 28% slabs making up about three-quarters of total revenue.
Concerns about revenue loss have also slowed any broad reduction in GST on health insurance, which generates around Rs 2,500 crore. States are cautious about losing this revenue, especially since the Centre is no longer compensating them for shortfalls. A group of ministers, led by Bihar’s Deputy CM Samrat Chaudhary, has already put together a proposal on reducing GST for health insurance, which is the least controversial of the main issues under review.
Another panel, led by Minister of State for Finance Pankaj Chaudhary, is reviewing the future of the compensation cess. However, a decision on this is expected only by late 2025, as the cess on luxury and “sin” goods will remain in place until March 2026.
While some discussions have explored reducing GST on essential items and increasing it on luxury goods, no concrete decisions are expected during this meeting. The emphasis for now remains on insurance.
Why India is calling for health insurance GST cut
The demands for junking indirect tax on health insurance came to limelight afer Transport Minister Nitin Gadkari demanded so in a letter to India’s finance minister earlier this year. FM Nirmala Sitharaman later said the letter wasn’t meant to be public.
In a nation with significant income inequality and pressing needs for enhanced healthcare infrastructure, many Indians are questioning why they should be taxed on healthcare—a service widely viewed as essential. Insurance penetration in India remains much lower than in many other countries, and taxes add an extra burden on citizens who seek medical insurance.
A group of ministers (GoM) was tasked by the Goods and Services Tax (GST) Council to oversee rate rationalisation, is considering lowering the GST on premiums paid for life and health insurance policies. This potential reduction could offer a good financial relief to individuals and families having insurance coverage.
However, there’s a concern that insurance companies may keep the benefit of lwer GST on insurance for themselves and not pass it on to people buying health insurance, a state finance minister had told ToI in September. Another minister said that although there’s pressure to lower the burden on consumers, companies have been raising premiums ever since the COVID-19 pandemic, citing increased claims. While COVID-related claims have since decreased, insurance companies haven’t given any relief to policyholders. Instead, they claim that the cost of handling claims is still higher than the premiums they collect.
(With ToI inputs)