“Nagpur Divisional Life Insurance Corporation Employees Union, Nagpur, has submitted me a memorandum about the issues pertaining to the Insurance Industry and sought to take up them with your goodself. Main issue raised by the Union is related to withdrawal of GST on Life and Medical Insurance Premium,” said the Transport Minister.
ET Online has not verified this letter independently
“Levying GST on life insurance premium amounts to levying tax on the uncertainties of life. The Union feels that the person who covers the risk of life’s uncertainties to give some protection to the family should not be levied tax on the premium to purchase cover against this risk. Similarly, the 18% GST on medical insurance premium is proving to be a deterrent for the growth of this segment of business which is socially necessary,” noted Gadkari in a letter addressed to Sitharaman.
In India, insurance and pension fund assets represent 19% and 5% of GDP, respectively. In contrast, these figures stand at 52% and 122% in the USA, and 112% and 80% in the UK, highlighting substantial growth potential in India.
According to Economic Survey, insurance penetration as a share of GDP is anticipated to increase from 3.8% in FY23 to 4.3% by FY35. Meanwhile, life insurance premiums are projected to grow at an annual rate of 6.7% from 2024 to 2028, fueled by rising demand for term life coverage, a youthful demographic, and advancements in Insurtech.
Moreover, Gadkari in the letter raised the union’s concern on differential treatment to savings by way of Life Insurance, re-introduction of IT deduction for health insurance premium and consolidation of public and sector general insurance companies.
“In view of the above, 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 as per rules with due verification along with other relevant points raised,” said Gadkari to Sitharaman.
Parliamentary panel’s view on GST for insurance products
A parliamentary committee headed by former minister of state for finance Jayant Sinha has recommended that there is a need to rationalise the Goods & Services Tax (GST) on insurance products, especially health and term insurance. It also suggested that the Reserve Bank of India, on behalf of the government, may issue ‘on-tap’ bonds to meet the capital requirements of the insurance industry, which are pegged at Rs 40–50,000 crore.
The committee, in its recommendations, observed that the high rate of GST results in a high premium burden, which acts as a deterrent to getting insurance policies. The current GST rate is 18%.
“The committee, with a view to making insurance more affordable, recommends that GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to limits prescribed under PMJAY, presently Rs 5 lakh), and term policies may be reduced,” it noted.