GST Council To Discuss Insurance Tax Relief, GOM Likely To Push Full Exemption

The Goods and Services Tax (GST) Council is expected to take up the long-pending issue of tax relief on life and health insurance premiums at its upcoming meeting. The Group of Ministers (GOM) on insurance is likely to reaffirm its previous recommendation, advocating for a full GST exemption on term life insurance and health cover for senior citizens.  

Major Developments  

- The GOM is expected to resubmit its proposal for a full GST exemption on term life insurance and health insurance premiums for senior citizens.  
- The current GST rate on life and health insurance policies stands at 18 percent, with industry stakeholders pushing for a reduction to improve affordability.  
- The council may also consider exempting GST on health insurance policies up to five lakh rupees to make coverage more accessible.  
- The proposed exemptions could lead to an estimated revenue loss of 2600 crore rupees annually, with 200 crore rupees from term life cover and 2400 crore rupees from health insurance premium exemptions.  

Industry Concerns And Fiscal Impact  

While the exemption aims to improve insurance penetration, industry experts have raised concerns over the loss of input tax credit. Under the current system, insurers can offset taxes paid on inputs such as IT infrastructure, marketing, and administrative expenses against the GST collected from policyholders. A full exemption would eliminate this credit mechanism, potentially leading to higher premiums.  

Government officials argue that the expected increase in insurance coverage across India could outweigh the fiscal impact of the revenue loss. The Economic Survey 2024-25 highlighted India’s insurance penetration at 3.7 percent of GDP, significantly lower than the global average of around 7 percent. The exemption proposal is positioned as a strategic move to enhance affordability and expand coverage, particularly for vulnerable sections of the population.  

Next Steps And Council Deliberations  

The final decision rests with the GST Council, which will weigh the GOM’s proposal against industry feedback and fiscal constraints. The meeting is expected to take place before the monsoon session of Parliament, where discussions will focus on balancing affordability with financial sustainability.  

Source: Moneycontrol, Economic Survey 2024-25, Insurance Regulatory and Development Authority of India (IRDAI)