Ahead of the GST Council meeting, a proposal for rationalising GST on insurance premium got boost with the Financial Services Department and the Insurance Regulatory and Development Authority of India (IRDAI) supporting the move.

The GST Council is scheduled to meet on December 21 at Jaisalmer in Rajasthan and one likely item on the agenda is restructuring GST on insurance premium. A Group of Ministers has already advocated exempting premiums paid on health insurance for senior citizens, health insurance with coverage of ₹5 lakh and term life insurance. For all other policies, the GoM suggested retaining existing rates.

As on date, the premia for health insurance, term and unit-linked insurance plans attracts 18 per cent GST. On endowment plans, the GST is applied differently. While it is 4.5 per cent for premium paid during the first year, it is 2.25 per cent from the second year. For life insurance, in the form of single premium annuity policies, the GST rate is 1.8 per cent. Rates are the same for all age groups.

• Also read: Prepare for growing electricity demand from data centres, says IEA

Making a submission before a Parliamentary panel, the IRDAI said several developed countries, including the European Union and Canada, exempted insurance products from VAT or GST. This reinforces the argument for providing similar benefits in India to encourage greater insurance penetration, it said.

The insurance regulator argued that increased longevity and healthcare needs necessitate greater health insurance adoption. Extending GST exemption to micro-insurance and senior citizen health policies would benefit disadvantaged sections.  The current inconsistency where medical services are exempt but premiums attract GST creates an unfair burden.

To give relief to disadvantageous and vulnerable sections of society, IRDAI has suggested extending exemption from GST for retail health policies offered to senior citizens, micro-Insurance policies and term insurance policies up to a suitable limit. The Financial Services Department also supports the proposal of reduction of GST.

On November 25, in a written response, Minister of State in the Finance Ministry Pankaj Chaudhary said that GST Council, in its meeting on September 9, discussed the issue of exempting/reducing the GST on life and health insurance. It recommended referring this matter to a Group of Ministers (GoM) to holistically look into the issues. “First meeting of the GoM was held on 19th October 2024 at New Delhi where the issues of GST rates on health and life insurance policies were discussed. The recommendations of the GoM when received will be placed before the GST Council,” Chaudhary said.

• Also read: Parliamentary panel advocates automated compensation process for banking fraud victims

Data mentioned in the written answer by Minister of State in the Finance Ministry Pankaj Chaudhary showed that GST collection was over ₹29,000 crore, while it was over ₹23,000 crore through health insurance premia. Around ₹4,700 crore was collected through re-insurance premia under life and health insurance.

Earlier this year, the Department related Standing Committee on Finance, with a view to make insurance more affordable, recommend that GST rates applicable to health insurance products, particularly retail policies for senior citizens and micro-insurance policies (up to limits prescribed under PMJAY, presently ₹5 lakh), and term policies may be reduced.