Finance Minister Nirmala Sitharaman has suggested that a reduction in the GST on life and health insurance premiums could lead to lower costs for policyholders. In response to a question in the Lok Sabha, she revealed that the GST Council had recommended the formation of a Group of Ministers (GoM) during its September 9 meeting to thoroughly review the current GST framework on life and health insurance policies.
The matter remains under active examination, with any potential changes set to be discussed at the upcoming GST Council meeting on December 21. Sitharaman highlighted that if the GST rates on insurance premiums are reduced, it would directly benefit consumers by lowering insurance costs. She also pointed out that in a competitive market with a variety of insurers, such reductions would be passed on to consumers, rather than absorbed through higher premiums.
Currently, life and health insurance premiums are taxed at an 18% GST rate. However, the GoM has reportedly recommended several changes, including GST exemptions for term life insurance policies and health insurance plans for senior citizens. Additionally, it is being considered that health insurance premiums for individuals with coverage below Rs 5 lakh may be exempt from GST, while policies offering coverage above Rs 5 lakh would continue to be taxed at the current rate.
In the 2023-24 fiscal year, GST collections from life and health insurance premiums amounted to Rs 16,398 crore, with Rs 8,135 crore coming from life insurance and Rs 8,263 crore from health insurance. The proposed changes are expected to have a significant impact on both the insurance sector and policyholders.
The outcome of these discussions could pave the way for more affordable insurance options, offering much-needed relief to consumers, particularly in the face of rising premiums.
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