GST Exemption Proposed for Health and Life Insurance Premiums
A Group of Ministers (GoM) has proposed exempting individual health and life insurance policies from the Goods and Services Tax. Currently, premiums attract an 18% GST rate. The proposal, aimed at making insurance more affordable and accessible to boost penetration across the country, will now be submitted to the GST Council for a final decision. The move responds to long-standing demands from the industry and consumers who see the high tax rate as a barrier to coverage.
Unpacked:
Currently, health and term insurance premiums attract an 18% GST rate. Life insurance premiums are taxed at 4.5% in the first year and 2.25% for subsequent years, while endowment and savings plans follow a similar structure. ULIPs (if not equity-linked) are taxed at 18%.
Insurers would lose the Input Tax Credit (ITC) benefit, which helps offset GST paid on their business expenses. This could lead companies to adjust their base premiums to make up for the lost credits, though overall premiums for customers are still expected to decrease.
The government aims to improve insurance affordability and coverage, addressing concerns that the high GST rate discourages many—especially middle and lower-income groups—from purchasing insurance. The move aligns with broader financial inclusion goals and recent pushes to increase insurance penetration in India, which lags behind the global average.
The Group of Ministers (GoM) will submit their report to the GST Council, which has the authority to make the final decision. If the Council approves the exemption, implementation mechanisms—such as ensuring savings are passed to consumers—will need to be established.