The Goods and Services Tax (GST) Council is expected to consider a proposal to remove GST (goods and services tax) on premiums for term life and health insurance. The proposal, if approved, will offer a significant relief to policyholders and support the insurance sector by lowering costs.
The Group of Ministers (GoM) on GST recently reached a consensus on a proposal to exempt from GST premiums paid for term life insurance and also health insurance for senior citizens. The GoM also agreed on the proposal to exempt health insurance policies with coverage up to Rs 5 lakh from paying GST.
Currently, life and health insurance premiums are taxed at a rate of 18%. The GST Council will take the final call on these proposals.
Pankaj Nawani, CEO of CarePal Secure, remarked on the potential impact of reducing the 18% GST: “The idea of reducing the 18% Goods and Services Tax (GST) on term life and health insurance has sparked a lot of debate. Many believe that lowering GST, especially from the current 18%, could help tackle the affordability issue, making insurance more accessible for a broader group of people. But here’s the tricky part — GST helps fund important social welfare schemes, which makes it difficult to completely remove it for all types of insurance policies.”
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“Let’s break it down with a simple example. If your base insurance premium is Rs 10,000, the total cost under the current 18% GST would be Rs 11,800. But if GST is reduced to 12%, the total would drop to Rs 11,200. A further reduction to 5% would bring it down to Rs 10,500. This cut in costs could encourage more middle-class families to take up life and health insurance, especially since many currently find the premiums too high to fit into their budgets,” Nawani added.
Now, removing GST entirely sounds great in theory, but in practice, it’s not very likely, according to him.
Echoing this sentiment, Sharad Bajaj, COO of InsuranceDekho, highlighted the broader implications of the proposed exemption: “This reform aims to lower premium costs, making insurance more affordable and accessible across all economic segments. It aligns with the government’s vision of ‘Insurance for All’ by 2047.”
Bajaj added that the GST waiver would particularly benefit low-income individuals and senior citizens.
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