A proposal to reduce the Goods and Services Tax (GST) on health and term insurance premiums from the current 18% to just 5% is likely to be discussed in a meeting ahead of a meeting ahead of the upcoming monsoon session of Parliament.
At present, GST is levied at 18% on both health insurance and term insurance premiums. As a result, senior citizens aged 60 and above, and super senior citizens aged 80 and above, often find it difficult to afford insurance due to the high tax burden.
The central government is now considering removing or reducing GST on insurance premiums. If the 18% GST is eliminated, insurance will become more affordable, potentially increasing the number of people opting for insurance coverage.
A final decision on the matter is expected during the upcoming GST Council meeting, which is scheduled to take place before the Parliament’s monsoon session.
A report was submitted to the GST Council in December 2024. The Insurance Regulatory and Development Authority of India (IRDAI) has also provided its opinion on the matter.
The report has even recommended that life insurance premiums, particularly those with claims of up to ₹5 lakh, should also be exempt from GST to reduce the financial burden on policyholders.
However, removing GST from health insurance premiums could lead to a revenue loss of around ₹2,600 crore for insurance companies.
In addition, eliminating GST on term deposits is estimated to reduce government income by another ₹200 crore.
On the other hand, insurance companies argue that if GST is removed from premiums, they will face difficulties in claiming input tax credit (ITC).
