The government is expected to completely scrap, or significantly reduce GST on health and term insurance to 5 percent from the current 18 percent as part of its major rejig of the tax structure, The Indian Express reported citing sources. This move will likely make insurance more affordable and ensure better insurance penetration in India.
While delivering his Independence Day speech, Prime Minister Narendra Modi hinted at the next generation of Goods and Services Tax (GST) reforms to be announced as a Diwali gift for consumers. According to the latest report, the long-anticipated reduction in GST on insurance is being actively considered by the government, although it is may cause an annual revenue loss of around Rs 17,000 crore for the government.
In case the GST on health and term insurance is completely abolished, then the insurance companies may lose their ability to claim input tax credit (ITC), which in turn may hike their operating costs, the report added.
Term life insurance premiums and health insurance policies currently attract 18 percent GST in India. For senior citizens who pay Rs 50,000 a year for health insurance, an 18 percent GST amounts to Rs 9,000 or more. Reducing this tax lowers the price of such policies, thereby helping more people opt for insurance. Notably, insurance regulator IRDAI has backed this move.
The next generation GST reforms announced by the Prime Minister Narendra Modi in his 79th Independence Day address, which is expected to rolled by Diwali this year, could soften inflation, ease fiscal pressure in the near term, and increase the likelihood of a repo rate cut by the Reserve Bank of India (RBI) as early as October, economists and brokerages said.
The Centre has proposed to “essentially move towards simple tax” with 2 slabs—”standard and merit”, with special rates applicable for only for select few items, the finance ministry on August 15.
In a statement issued after the PM’s address, the ministry said that the central government has sent its proposal on GST rate rationalisation and reforms — specifically linked to structural reforms, rate rationalisation, and ease of living — to the Group of Ministers (GoM) constituted by the GST Council to examine this issue.
