GST Reduction on Life & Health Insurance Under Review: Finance Minister Sitharaman

The Finance Minister explained that in a competitive market, a reduced GST rate would directly benefit policyholders, as the overall cost of insurance would decrease.

The cost of insurance for policyholders may decrease if the GST Council recommends reducing the GST rate on life and health insurance policies, Finance Minister Nirmala Sitharaman said in a written response to the Lok Sabha on December 2.

Sitharaman noted that during its September 9 meeting, the GST Council proposed forming a Group of Ministers (GoM) to comprehensively examine GST-related issues on insurance policies.

The GoM's review is ongoing, and its report is expected to be discussed during the GST Council meeting in Jaisalmer on December 21.

“The review of GST rates on life and health insurance is currently under consideration by the GoM. Should the GST Council suggest a reduction, the cost of insurance for policyholders is likely to decrease due to the lower GST,” Sitharaman stated.

Currently, a GST rate of 18% is levied on premiums for life and health insurance policies.

The Finance Minister explained that in a competitive market, a reduced GST rate would directly benefit policyholders, as the overall cost of insurance would decrease.

“GST is applied on top of the insurance premium, so a reduction would naturally lower the cost,” she added.

The GoM on life and health insurance, led by Bihar Deputy Chief Minister Samrat Chaudhary, held its first meeting on October 19.

Sources indicate that the panel is considering exemptions for premiums paid for term life insurance policies and health insurance for senior citizens. Premiums for health insurance policies covering up to INR 5 lakh may also be exempted, while the 18% GST rate may continue for policies exceeding INR 5 lakh.

In the 2023-24 fiscal year, the central and state governments collected INR 16,398 Cr in GST from life and health insurance, including INR 8,135 Cr from life insurance, INR 8,263 Cr from health insurance, and INR 2,045 Cr from reinsurance.

The GST Council, chaired by Sitharaman and comprising state counterparts, will make the final decision on the proposal during its December 21 meeting.