The life and non-life insurance industries are hopeful of a reduction in the goods and services tax (GST) on health and life insurance premiums, after Prime Minister Narendra Modi, in his speech on Friday, announced GST relaxations aimed at providing relief to ordinary citizens, farmers, the middle class, and the small and medium enterprises (MSME) sector.
Illustration: Dominic Xavier/Rediff
Currently, GST on health, and life insurance premiums is 18 per cent.
For some time now, the insurers have been requesting for a reduction in health insurance GST rates to 12 per cent from the existing 18 per cent, along with the benefit of input tax credit to the insurance business.
According to the industry, revision in GST rates will make insurance more affordable, aid insurance penetration and help in achieving the ‘Insurance for All by 2047’ initiative — a target set by the Insurance Regulatory and Development Authority of India (Irdai).
Insurance penetration in India stood at 3.7 per cent in FY24 as against 4 per cent in the year ago period, with non-life insurance penetration flat at 1 per cent and life insurance penetration at 3 per cent as against 2.8 per cent.
Growth in health insurance has been affected by affordability concerns amid high medical inflation.
Meanwhile, reports suggest that, in a major overhaul of the GST structure, the Central government has proposed scrapping the 12 per cent and 28 per cent tax slabs — a move expected to provide relief on a wide range of goods and services and boost the economy.
According to the proposal, 99 per cent of the products and services in the 12 per cent slab will be shifted to 5 per cent, and most of the items in the current highest slab of 28 per cent will be moved to the 18 per cent slab.
“We hope for a reduction in GST on life and health insurance.
“Even if GST is lowered across other sectors, including consumer goods, (this) would significantly boost disposable income, empowering individuals to make more informed financial decisions…
“This move would not only encourage insurance inclusion but also strengthen the foundation of social security,” said Sharad Mathur, MD & CEO, Universal Sompo General Insurance.
“Multiple options have been explored including lower rates for health and life insurance premiums, reduction in GST rates for premiums paid by senior citizens etc.
“Industry also feels that health and life could be categorised as a merit sector and given a lower rate instead of bringing the rates down to 0 per cent,” said an industry executive, who did not wish to be named.
Revenue collected by the central government through GST on health and life insurance premiums surged to Rs 16,398 crore in FY24 from Rs 2,101 crore in FY20, Minister of State for Finance Pankaj Chaudhary had told the Lok Sabha in November 2024.
