West Bengal Chief Minister Mamata Banerjee on Wednesday said that a cut in Goods and Services Tax (GST) on health insurance premiums from the current 18% could cost the state exchequer nearly Rs 900 crore a year. The Centre is preparing a broader GST rate overhaul, with a proposal to exempt health insurance and several essential goods expected to come up at the next GST Council meeting in early September.
Banerjee said Bengal was the first state to demand a GST waiver on health insurance to make medical cover more accessible. “The waiver of GST on health insurance premiums will cost Bengal ₹900 crore. But we had to think of the people first. We have advocated for this reform so that more citizens can access health insurance,” she said while addressing a government event in Bardhaman.
Currently, health insurance premiums attract 18% GST, of which states receive a 9% share.
Banerjee cautioned that insurers must not negate the benefit by hiking tariffs.
“We have to ensure that insurance companies do not raise premiums after the GST cut. The purpose is to reduce the burden on families,” she added.
The proposed relief is expected to improve health insurance penetration in India, where less than 20% of the population is covered under private policies. However, several states have flagged potential revenue losses, since GST collections on premiums contribute to their tax pool.
Banerjee also highlighted Bengal’s flagship Swasthya Sathi scheme, which provides free health coverage up to Rs 5 lakh for residents. She said the GST waiver, combined with state-level initiatives, would encourage more people to secure health insurance.
The proposal to abolish the GST on insurance premiums has become a significant point of discussion. This political and economic debate gained momentum in 2024 following a Rajya Sabha announcement that highlighted the considerable GST collections from insurance premiums. Over the past three fiscal years, the Centre accumulated over Rs 24,000 crore through GST on premiums, with Rs 21,000 crore from new policies and an additional Rs 3,274 crore from policy renewals. This revelation has prompted discussions on the potential impact of scrapping the GST on policyholders.
The current GST system contributes to the overall cost of insurance, affecting both affordability and accessibility. While scrapping GST could theoretically reduce premiums, there is scepticism about the lasting impact of such a measure. Critics suggest that insurance companies may adjust their pricing, nullifying the intended benefits for policyholders. Hence, the proposal’s effectiveness remains a contentious issue, with concerns that it may not achieve substantial long-term reductions in premiums.
The debate over GST removal on insurance premiums is occurring within a dynamic industry landscape. The insurance sector, which has been witnessing growth and increased consumer awareness, must consider the implications of such a tax reform on its revenue and service provisions. The removal of GST could potentially make insurance policies more attractive by lowering costs, yet industry stakeholders must evaluate how this change would affect service quality and market dynamics.
