Senior citizens paying Rs 50,000 annually for health insurance currently shell out an additional Rs 9,000 solely in Goods and Services Tax (GST), thanks to the steep 18% rate on insurance premiums. That burden may finally ease. The upcoming GST Council meeting is expected to consider a long-pending proposal: reducing or even scrapping GST on life and health insurance premiums.
Relief on insurance premiums
The move could be a game-changer, especially for the elderly and those buying basic health plans. Medical inflation is currently around 14%. Cutting GST will ease pressure on household budgets and help expand insurance coverage, which remains worryingly low. With healthcare inflation touching double digits and insurance premiums rising by 20–25% in recent years, any reduction in tax will significantly lower costs for policyholders. For instance, a senior paying Rs 50,000 annually would see the total cost drop to Rs 41,000 if GST is removed — a meaningful Rs 9,000 in savings.
The 18% GST has been one of the biggest pain points for policyholders and insurers alike, especially in a country where less than 40% of people have health insurance and term life insurance penetration is below 4%. The proposed relief aims to encourage greater adoption by making insurance more affordable across income groups.
Upcoming GST meeting
The upcoming GST Council meeting is set to consider a significant reduction or complete abolition of the 18% Goods and Services Tax (GST) on health and life insurance premiums. This move, if implemented, could bring much-needed relief to senior citizens and middle-class policyholders, aligning with the government’s objective to enhance insurance penetration across India. Rising healthcare costs make the current GST rate a significant burden for policyholders, particularly for those with limited incomes.
This change could decrease the government’s revenue by an estimated Rs 2,600 crore annually, although it foresees compensating for this through adjustments in other GST slabs.
Industry experts anticipate that reducing the GST to between 5% and 12% could result in enhanced affordability and uptake of insurance policies, particularly among first-time buyers. “The government decision to cut GST on insurance premiums can be a game-changer for the industry and crores of Indians,” an industry expert said. He noted that lower premiums would encourage more individuals to purchase adequate coverage, supporting the government’s vision of insurance for all by 2025.
Insurance adoption
The Group of Ministers (GoM) on insurance has recommended the complete removal of GST on term life and health insurance policies for senior citizens. There is also a discussion around exempting GST for policies with health cover up to Rs 5 lakh. This is part of a strategy to stimulate insurance adoption in a country where less than 40% of the population is covered by health insurance, and term life insurance penetration is below 4%.
Another tax expert, highlighted the necessity of insurance in today’s era, stating, “At the outset, it is important to understand that in the current era, insurance is a necessity for everyone. Reduction in the GST rates to 5% is indeed a positive step and will certainly help in deeper penetration of the sector in India.” Such sentiments illustrate the potential market growth and deeper penetration anticipated from this tax relief.
IRDAI has been advocating for tax reforms to promote wider coverage and affordability. With the potential tax reduction, insurers are expected to see increased volumes and an expanded risk pool, ultimately benefiting both citizens and the industry.
While the estimated annual revenue hit to the exchequer is around Rs 2,600 crore-Rs 2,400 crore from health insurance and Rs 200 crore from term life, the government is reportedly considering offsetting this through changes in other GST slab structures.
The anticipated decrease in GST aligns with the government’s broader economic goals, making long-term financial planning more accessible. By addressing affordability, it is hoped that more Indians will be encouraged to secure their financial future through insurance products.
