The long-pending issue of tax relief on life and health insurance premiums is likely to be discussed in the upcoming GST Council meeting. According to reports, the Group of Ministers (GoM) constituted on insurance matters may recommend full GST exemption on life insurance and health insurance policies of senior citizens, reiterating its previous recommendations.
Ahead of this meeting, the final comments of insurance regulator IRDAI have also been sent to the council, which were sought in the December 2024 meeting and which are being considered important in this decision.
Tax exemption likely on health insurance up to Rs 5 lakh
An important suggestion in the recommendations of the Group of Ministers is – health insurance plans up to Rs 5 lakh should be completely exempted from GST. This proposal is considered a big relief step for the general public, especially the middle and lower income groups. Currently, 18% GST is levied on health and life insurance, which makes the premiums expensive.
An industry expert says:
“Removing GST on health policies up to Rs 5 lakh can make health insurance more accessible to crores of families in India. This can lead to a rapid increase in the number of first-time insurance buyers in tier-2 and tier-3 cities. This is a move that will not only increase new buyers but will also improve the retention of existing policyholders.”
He also added that this move will also open the way for the insurance industry to create simple and affordable plans, which will boost insurance coverage across the country.
GST relief for term life insurance for senior citizens?
At the same time, the suggestion to remove GST on term life insurance premium for senior citizens is also included in the recommendations of the Group of Ministers.
According to him: “Making life insurance accessible to India’s elderly population is one of the biggest needs of today. For people above 60 years of age, the 18% GST on term insurance significantly increases their premium cost, making it impossible for many people to buy insurance. Removing the tax will be a big step towards providing financial security to this class.”
What will be the support from the government?
However, this proposal may lead to a revenue loss of around Rs 2,600 crore for the government – of which around Rs 200 crore will come from relief on term life insurance and Rs 2,400 crore on health insurance, some media reports suggest.
But experts believe that this loss is less than the long-term social and economic benefits.
According to Secretary of Bombay Chartered Accountants Society (BCAS):
“The government has previously exempted some schemes from service tax. So this time too, premium-based exemptions can be given on major policies. However, complete exemption seems difficult right now.”
He says that if GST is removed, insurance companies may lose input tax credit, but the reduction in premiums will be beneficial to consumers overall.
“This will provide immediate relief to policyholders and support long-term efforts to increase insurance penetration in India,” he said.
Low insurance penetration remains a concern, tax exemption can solve this
Currently, insurance penetration in India is only 3.7% of gross domestic product (GDP), which is much lower than the global average of 7%. In such a situation, targeted tax exemptions, such as relief on policies up to Rs 5 lakh, also match the government’s policy of ‘health insurance for all’.
According to government sources, “Making GST 12% will not benefit the common man much, and making it 5% will result in loss of input tax credit. The best option is to give full exemption.”
Will common people get tax relief? Now eyes on GST Council
Now the decision has to be taken by the GST Council, which will take into account the opinion of the industry, impact on revenue and public policy. This meeting can be held before the monsoon session of Parliament.
If health insurance policies up to Rs 5 lakh are exempted from GST, it can make insurance affordable and accessible to common Indians. However, the government will have to evaluate the possible revenue loss in return.
