GST Council Forms GoM to Review Tax Rates on Health Insurance

GST Council chairperson Nirmala Sitharaman stated that the Council could take several crucial decisions in its next meeting, set for November during the festive season.

The GST Council has recently set up a Group of Ministers (GoM) to explore possible exemptions on GST for life and medical insurance premiums, along with reductions in tax rates on certain cancer drugs.

It has also announced plans to phase out the compensation cess earlier than scheduled while suggesting the possibility of continuing levies on luxury items such as automobiles in a different form.

Following the 54th meeting of the apex federal body on indirect taxes, GST Council chairperson Nirmala Sitharaman stated that the Council could take several crucial decisions in its next meeting, set for November during the festive season.

The newly formed GoM, headed by Bihar Deputy Chief Minister Samrat Chaudhury, will focus on medical and health insurance issues, with its report due by the end of October.

The creation of the GoM comes after multiple MPs questioned the rationale behind the 18% GST rate on life and medical insurance premiums, a rate inherited from the previous VAT regime.

This even led to a protest by the members of the INDIA bloc, led by Lok Sabha opposition leader Rahul Gandhi, in the Parliament complex.

Carrying placards reading "Tax Terrorism," the MPs accused the Center of placing an undue financial burden on policyholders.

Moreover, West Bengal CM Mamata Banerjee also called on the central government to withdraw GST on life insurance and health insurance premiums, labeling the taxation as "anti-people."

Interestingly, the push to eliminate GST on health and life insurance originated from Transport Minister Nitin Gadkari. He advocated on behalf of the Life Insurance Corporation (LIC) employee union from Nagpur, showcasing the internal government dynamics and differing perspectives within the ruling party.

Sitharaman responded by committing to a review by the Council, noting that the complexity of the discussion—covering aspects like group insurance and policies for senior citizens—necessitated a deeper examination by the GoM.

The Council also decided to reduce the GST on specific cancer drugs—Trastuzumab Deruxtecan, Osimertinib, and Durvalumab—from 12% to 5%.

Additionally, the Council has recommended exempting GST on research and development services provided by government entities or recognized research institutions that already benefit from income tax exemptions.

Sitharaman highlighted that this move was encouraged by PM Modi to bolster R&D in India.

The GST compensation cess, originally set to expire by March 2026, could be terminated earlier. However, higher duties on luxury goods might continue under a different framework.

Since the GST regime's introduction in July 2017, most Council decisions have been unanimous, barring one exception.

The upcoming meeting in November is expected to address the GoM's recommendations and other pending issues.