The GST Council recently held a meeting to address the growing concerns about the 18% tax on insurance premiums, particularly for life and health insurance policies. To find a solution, they decided to form a special Group of Ministers who would quickly look into the issue and suggest changes to the tax.
The Council also assured that they would meet again in November to make a decision based on the group’s recommendations. This shows a change in attitude compared to last month when Finance Minister Nirmala Sitharaman strongly supported the tax in Parliament. She had pointed out that a large part of the revenue from this tax goes to state governments and suggested that Members of Parliament should discuss this issue with state ministers since they are part of the GST Council.
It’s important to note that this isn’t the first time the GST on insurance premiums has come up for discussion. Since the introduction of GST in July 2017, the Council has considered changing the tax on insurance at least three times, but every time, they decided to keep it the same.
What’s different this time is that even members of the government are now raising concerns about the tax. For example, Union Minister Nitin Gadkari expressed that applying GST to life insurance premiums is like taxing life’s uncertainties. Additionally, political allies of the ruling party, like the Telugu Desam Party (TDP) and Jana Sena Party, are also pushing for a reduction in the tax on life and health insurance.
Another possible reason for reconsidering the tax is that, after the general elections, the government has been less enthusiastic about celebrating the high GST revenue collections, as many people believe it reflects high taxes on consumers. For instance, GST revenue from health insurance premiums increased by over 54% between 2021-22 and 2023-24, amounting to ₹8,262 crore last year.
The article hopes that any reduction in GST on health insurance should not be limited to specific cases, like group policies or senior citizens. Instead, it should result in actual reductions in the premiums that people pay. After the COVID-19 pandemic, more people are aware of the need for health insurance, but at the same time, the cost of both healthcare and insurance has gone up significantly. In India, where public healthcare systems are not strong enough, a serious illness in one family member can push a household into poverty.
When it comes to life insurance, the GST Council may consider reducing the tax more significantly on pure-term insurance policies. These policies provide direct financial support to families in case of an emergency, unlike investment-based insurance products that are often marketed as insurance. The article suggests that if helicopter rides can be taxed at only 5%, then insurance policies, which are essential for people’s financial protection, deserve to be taxed more leniently as well..
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