GST on Health Insurance: Will Relief Finally Arrive for Policyholders?
The 18% GST on health insurance premiums has long been a burden for many. If you’ve been feeling the pinch, you’re not alone. There’s a chance that this might soon change, but the outcome is still uncertain.
What’s Happening Now?
Ahead of the crucial GST Council meeting set for September 9, states are struggling to reach a consensus on whether to remove or reduce the GST on health insurance premiums. According to a report from Moneycontrol, the Fitment Committee — consisting of revenue officials from both the state and central government — is still at a stalemate.
This committee has been considering the proposal to eliminate the 18% GST on premiums for health insurance policies after significant political pressure, including calls from Union Minister Nitin Gadkari and West Bengal CM Mamata Banerjee, who urged Finance Minister Nirmala Sitharaman to consider this reduction.
The decision could be made in the upcoming meeting in Delhi, and many are hopeful that policyholders will finally get some relief.
Why Is There a Push to Reduce the GST?
Since the introduction of the Goods and Services Tax (GST) on July 1, 2017, which replaced several indirect taxes, the cost of health insurance has gone up. Before GST, life insurance premiums were subject to a 15% service tax, which included various cesses. But with the new regime, the tax on these premiums jumped to 18%.
This change has significantly impacted policyholders, increasing their yearly premiums. The insurance industry and policyholders have been demanding the removal of this tax for years, arguing that it’s an unnecessary financial burden.
The Case for Reducing GST on Health Insurance
The Fitment Committee seems to be leaning towards a reduction. There is talk of bringing down the GST on health insurance premiums from 18% to 5%, a move that would align with other essential financial products. The proposal also suggests exempting GST on annuity purchases made with accumulated pension funds.
If this happens, it would mark a substantial victory for the insurance sector and consumers. For many, insurance isn’t a luxury but a necessity, providing vital financial support during unexpected events like hospitalisation or loss of life.
Tapan Singhel, MD & CEO of Bajaj Allianz General Insurance, sums it up well: “Reducing the GST rates on health insurance premiums is crucial given the low insurance penetration in India and the essential financial support insurance provides against sudden financial loss. Lowering the GST on health insurance from 18% to 5% would make it more affordable, encouraging more people to purchase it.”
Why Is This So Important Now?
The 37th meeting of the GST Council is when the real discussions will take place. A detailed proposal backed by the Financial Services Department and the Insurance Regulatory and Development Authority of India (IRDAI) will be presented, and it could shape the future of insurance pricing in India.
Here’s what’s at stake:
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Increased Costs: The current GST rate has led to a significant rise in the cost of health insurance. According to data presented in the Lok Sabha in August 2024, GST collected on insurance premiums rose from Rs 5,354.28 crore in FY21-22 to Rs 8,262.94 crore in FY23-24. The GST on health reinsurance premiums also increased from Rs 825.95 crore to Rs 1,484.36 crore over the same period. These numbers highlight the growing financial burden on policyholders.
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Impact on Insurance Coverage: High tax rates can dissuade people from buying or increasing their insurance coverage. For a product that primarily provides benefits only in case of specific occurrences, such as hospitalisation, the perceived value can be diminished if policyholders feel they are paying more in premiums and taxes than they will ever claim in benefits.
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Low Insurance Penetration: India’s insurance penetration is still relatively low compared to global standards. High GST rates make health insurance less accessible to the average citizen, reducing overall coverage.
What’s Next?
The GST Council’s decision on September 9 could provide much-needed clarity. If they decide to reduce or eliminate the GST on health insurance premiums, it could mean lower costs for millions of policyholders. The Fitment Committee is reportedly in favour of relief, but there is still no consensus among the states.
We could see a major change in how health insurance is priced, making it more accessible to everyone. This potential reduction could lead to greater insurance penetration across India, ultimately helping more people manage their financial risks better.
Why Should You Care?
If you’re a policyholder, this could directly affect how much you pay for your insurance premiums. Lower GST would mean lower overall costs, making insurance more affordable. If you’re considering buying health insurance, the decision made in the upcoming GST Council meeting could influence your purchase.
Conclusion: Will GST Relief Finally Come Through?
As we approach the GST Council meeting, there’s cautious optimism among policyholders and the insurance industry. A reduction or elimination of the 18% GST on health insurance premiums would provide significant financial relief to millions. The meeting’s outcome will determine whether this longstanding demand will finally be met. Stay tuned for updates on this pivotal decision that could impact your health insurance costs.
