These 4 options of GST Relief on Health Insurance stem from a detailed analysis by the Council’s fitment panel, comprising both central and state revenue officials.
The Goods and Services Tax (GST) Council is expected to address four crucial options regarding the tax treatment of health insurance in its upcoming meeting on Monday. These proposals aim to make health insurance more affordable, with potential financial impacts ranging from Rs 645 crore to Rs 3,500 crore on the government’s revenue.
4 Proposals for Health Insurance Tax Relief
These options stem from a detailed analysis by the Council’s fitment panel, comprising both central and state revenue officials. The analysis was initiated following a request from the Department of Financial Services (DFS) to reduce taxes on health insurance to improve its accessibility.
Among the four proposals expected to be presented before the Council are:
- Full Exemption: Offering complete exemption from GST on all health insurance premiums and reinsurance.
- Reduced GST Rate: Lowering the GST rate on health insurance services from 18% to 5%.
- Selective Exemption: Exempting premiums paid by senior citizens or those with coverage up to Rs 5 lakh.
- Senior Citizen Focus: Exempting only the premiums paid by senior citizens from GST.
Each proposal carries different implications for the exchequer, estimated at Rs 3,495 crore, Rs 1,730 crore, Rs 2,110 crore, and Rs 645 crore, respectively.
Additional Proposals: GST Relief for Life Insurance
In addition to the health insurance proposals, the panel is also considering exempting life insurance premiums from GST. The focus here is on pure-term individual life policies and reinsurance, with a projected revenue impact of Rs 210 crore. However, the panel emphasized that insurance companies must pass on the benefits of any GST relief to policyholders.
Financial Impact and Insurance Penetration
The DFS’s data highlights that total health insurance premiums in India reached Rs 90,032 crore in FY23, with the individual health insurance segment contributing Rs 35,300 crore, or 39% of the total. At the current 18% GST rate, the government collected Rs 6,354 crore from individual health insurance premiums alone.
The DFS has advocated for reducing GST on health insurance, stating that it would encourage more people to purchase insurance and opt for higher coverage. This move aligns with the central government’s “Insurance for All” vision for 2047, which aims to provide a minimum level of social coverage for every citizen. The DFS believes that expanding insurance coverage could compensate for the short-term GST revenue loss.
Government and Industry Voices
Union Finance Minister Nirmala Sitharaman recently addressed this issue, noting that taxes on medical insurance existed before GST was introduced. Responding to calls from Rajya Sabha MPs for the removal of GST on medical insurance, she clarified that this was not a new concern, as pre-GST taxes had already been levied on such products across states.
Moreover, Union Minister of Road Transport and Highways Nitin Gadkari has advocated for removing the 18% GST on life and medical insurance premiums. He argued that this tax burdens individuals facing life’s uncertainties and impedes the development of the insurance sector.
Conclusion
The Council’s decision on these four proposals will play a pivotal role in shaping the future of health insurance in India, with significant implications for affordability, accessibility, and the broader insurance market. The meeting’s outcome will be keenly watched by industry stakeholders, policymakers, and the public alike.
By highlighting these proposed changes and their potential impact, the government hopes to boost insurance penetration and make health insurance more accessible to the masses. The reduction in GST on health insurance could be a crucial step towards achieving the goal of “Insurance for All.”
READ MORE