The GST Council is expected to decide on four options for reducing the tax burden on health insurance during its upcoming meeting. These options, suggested by the fitment panel, aim to make health insurance more affordable. The proposals include fully exempting health insurance premiums from GST or reducing the GST rate from 18% to 5%. Other possibilities include exempting premiums paid by senior citizens or those with coverage up to Rs 5 lakh, with different financial impacts ranging from Rs 645 crore to Rs 3,495 crore.
The fitment panel’s analysis stems from a request by the Department of Financial Services (DFS), which believes lowering taxes on health insurance will make it more accessible and affordable. They argue that reducing premiums would encourage more people to purchase health insurance, addressing India’s low insurance penetration. The DFS also suggests that more individuals opting for insurance could offset the short-term revenue loss from the proposed GST reductions.
In addition to health insurance, the panel also explored the possibility of exempting life insurance premiums from GST. However, this proposal is limited to pure-term individual life policies and reinsurers, which could result in a revenue impact of Rs 210 crore. The panel emphasized that any tax relief should come with a guarantee that insurance companies pass the benefits on to policyholders.
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In FY23, health insurance premiums in India amounted to Rs 90,032 crore, with the individual health insurance segment contributing 39% of this total. The government collected Rs 6,354 crore in GST from individual health insurance premiums at the current 18% rate. Reducing GST on these premiums, according to the DFS, would support the government’s goal of providing broader social coverage and align with its “Insurance for All” vision by 2047.
Union Finance Minister Nirmala Sitharaman previously addressed the issue, noting that taxes on medical insurance existed before GST and were not a new concern. Union Minister Nitin Gadkari also advocated for removing the 18% GST on life and medical insurance, arguing that the tax burden limits the growth of the insurance sector and adds to life’s uncertainties.