GST Council Forms GoM to Review Tax Rates on Health and Life Insurance Premiums
The GST Council has recently taken a significant step towards revisiting tax structures by forming a Group of Ministers (GoM). The primary objective of this 13-member group is to review the Goods and Services Tax (GST) rates on health and life insurance premiums. Headed by Bihar Deputy Chief Minister Samrat Choudhary, the panel is set to submit its findings and recommendations by October 30, 2024. The decision comes after the 54th GST Council meeting, held on September 9, 2024, signaling the council's willingness to reassess the current tax burden on the insurance sector.
Key Objectives of the Group of Ministers (GoM)
The Group of Ministers has been tasked with addressing key issues regarding the GST structure on insurance products, particularly focusing on the following:
- Reviewing GST rates on health and life insurance: The GoM will evaluate the GST rates applied to individual, group, and family insurance plans. This includes comprehensive health insurance policies covering a variety of medical needs.
- Specialized categories: Another important area under review is the tax rates for specialized categories like insurance for senior citizens and individuals with mental health conditions. These groups often have different insurance needs, and the current tax structure may not cater to them efficiently.
- Term insurance and investment-linked life insurance: The GoM will examine whether the current GST rates on term insurance and life insurance policies that are linked with investment plans, such as ULIPs, are justified. Reinsurance rates will also be reviewed to assess whether changes are necessary to stimulate the sector.
Current GST Structure on Insurance
As it stands, both health and life insurance premiums are subject to an 18% GST. This high rate has been a topic of debate, especially among states ruled by opposition parties. For instance, West Bengal has voiced its concerns, advocating for either a substantial reduction in GST or a complete exemption on these essential services. Others argue that a moderate reduction to 5% would make insurance more accessible to the public.
Revenue Impact from GST on Insurance
The revenue generated from GST on insurance is significant. In the fiscal year 2023-24, the government collected Rs 8,262.94 crore from GST on health insurance premiums and Rs 1,484.36 crore from health reinsurance premiums. Transport Minister Nitin Gadkari has also pointed out that imposing high taxes on insurance premiums could be counterproductive, as it essentially taxes people for seeking protection from life's uncertainties.
What’s Next?
The next critical step will be the submission of the GoM’s report by October 30, 2024. Following this, the GST Council will review the findings and make a final decision regarding the tax structure on insurance during its meeting in November 2024. The outcome will have far-reaching implications for both the insurance industry and policyholders, potentially making insurance products more affordable if the rates are reduced.
Conclusion
The formation of the GoM is a timely move aimed at addressing the pressing concerns surrounding the GST rates on health and life insurance premiums. With the report expected soon, the insurance industry and policyholders alike await the council’s final decision in November, which could either maintain the status quo or usher in much-needed relief through lower tax rates. This decision will ultimately impact millions of policyholders across India, making insurance more affordable and accessible.