IRDAI Backs GST Reduction on Insurance Premiums Ahead of GST Council Meeting

A Group of Ministers (GoM), formed earlier this year, has proposed exempting GST for senior citizen health insurance, health policies with coverage up to INR 5 lakh, and term life insurance policies.

Discussions on rationalizing GST on insurance premiums have gained momentum ahead of the upcoming GST Council meeting on December 21 in Jaisalmer, Rajasthan.

The Department of Financial Services and the Insurance Regulatory and Development Authority of India (IRDAI) have voiced their support for reducing GST rates on specific insurance policies to boost affordability and penetration.

Proposals for GST Reduction on Select Policies

Currently, GST on health insurance, term insurance, and unit-linked insurance plans stands at 18%.

For endowment plans, GST rates vary—4.5% for the first-year premium and 2.25% for subsequent years.

Single premium annuity policies attract a lower rate of 1.8%, applicable uniformly across all age groups.

A Group of Ministers (GoM), formed earlier this year, has proposed exempting GST for senior citizen health insurance, health policies with coverage up to INR 5 lakh, and term life insurance policies.

For other insurance plans, the GoM has recommended retaining the existing GST rates.

Global Practices & Regulatory Support

The IRDAI has highlighted practices in developed countries like the European Union and Canada, where insurance products are exempt from VAT or GST.

The regulator argues that extending similar benefits in India could encourage greater adoption of insurance, especially in the context of increasing healthcare needs and longevity.

The regulator also noted the inconsistency in India’s tax structure, where medical services are GST-exempt while insurance premiums attract the tax.

This, it argues, places an unfair financial burden on policyholders. IRDAI has suggested GST exemptions for retail health policies for senior citizens, micro-insurance policies for low-income groups, and term life insurance up to a specified limit.

The Financial Services Department has echoed these recommendations, advocating for a reduction in GST to make insurance more accessible to vulnerable populations.

GST Council Discussions & Recommendations

In a written response to Parliament on November 25, Minister of State for Finance Pankaj Chaudhary confirmed that the GST Council had discussed the issue of reducing GST rates on life and health insurance policies during its September 9 meeting.

The matter was referred to the GoM for detailed deliberation, which convened its first meeting on October 19 in New Delhi.

Chaudhary further mentioned that the GoM's recommendations, once finalized, would be presented at the GST Council meeting.

Data presented by the Finance Ministry showed that GST collections from health insurance premiums exceeded INR 23,000 crore, with an additional INR 4,700 crore collected through re-insurance premiums.

Total GST revenue from life and health insurance premiums surpassed INR 29,000 Cr.

The Department-related Standing Committee on Finance, earlier this year, recommended GST reductions for health insurance products, particularly retail policies for senior citizens, micro-insurance policies under schemes like PMJAY (currently capped at INR 5 lakh), and term insurance policies.

The upcoming GST Council meeting is expected to take a decisive step toward rationalizing GST rates, potentially easing financial burdens on policyholders while promoting greater insurance coverage across diverse demographics.

Stay tuned for more such updates on Digital Health News.