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GST on life, health insurance may be scrapped as Centre pushes exemption
The 13-member GoM deliberated on the proposal to exempt individual and family insurance policies from GST. 'The Centre's proposal is clear that the insurance sector's individual and family (policies) should be exempt from GST. This has been discussed and the GoM report will be presented to the Council,' Choudhary said after the meeting.
He added that 'all members have given their approval for lowering rates. Some states have given their own views,' while clarifying that the final decision rests with the GST Council.
At present, both life and health insurance premiums attract 18 per cent GST.
Next steps in the decision-making process
The GoM was constituted in September with ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu and Telangana, besides Bihar. The panel has been tasked with submitting its recommendations to the GST Council by October-end.
The panel will now submit its report, including suggestions and reservations voiced by state finance ministers, to the GST Council. The Council will take the final call on whether GST exemption should apply to life and health insurance.
How the proposal fits into larger GST reforms
The move to ease taxes on insurance is part of a wider reform package under consideration by the Centre. Under the proposed next-generation GST framework, the tax would be streamlined into two rates: 5 per cent and 18 per cent, depending on whether products fall into the merit or standard category.
Revenue from GST on insurance
In FY24, the Centre and states collected ₹8,262.94 crore from GST on health insurance premiums. Additionally, ₹1,484.36 crore came from GST on health reinsurance premiums, underscoring the significant revenue implications of any exemption.
On Wednesday, Finance Minister Nirmala Sitharaman also interacted with various GoMs formed by the GST Council. These included groups working on compensation cess, rate rationalisation, and taxation of health and life insurance, all part of the broader effort to revamp the indirect tax system.
PM Modi on GST overhaul
During his Independence Day address at the Red Fort, Prime Minister Narendra Modi announced a drastic cut in GST on common household items, hinting at sweeping changes in the indirect tax regime. 'GST rates will be reduced drastically. Tax will be reduced for the common people,' he said.
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