A Group of Ministers under the convenorship of Deputy Chief Minister of Bihar, Samrat Chaudhary, has submitted a report regarding GST rates on insurance premium, a senior government official said here on Wednesday. Now, its recommendations are expected to be discussed in the GST Council meeting schedule to take place on Saturday, December 21.
Although the recommendations of the GoM have not been made public, it is believed that these include a GST exemption for pure term life insurance policies that cover family members, exemption on health insurance for senior citizens, beside lowering the GST rate on all individual health insurance policies to 5 per cent, but without the option for Input Tax Credit (ITC). Also, no change has been suggested on all remaining insurance products, including ULIP.
On December 2, in a written reply in the Lok Sabha, Finance Minister Nirmala Sitharaman said as the GST rates are applicable over and above the insurance premium, if the GST rate is reduced, it is expected to benefit the policyholder directly, especially in a competitive market with many insurers. “The matter of review of GST rates on life and health insurance is pending before the GoM. If a recommendation for a reduction in GST rate is made by the GST Council, the cost of insurance to the policy holder is expected to come down on account of a reduction in GST,” she said.
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As on date, the premia for health insurance, term and unit-linked insurance plans attracts 18 per cent GST. On endowment plans, the GST is applied differently. While it is 4.5 per cent for premium paid during the first year, it is 2.25 per cent from the second year. For life insurance in the form of single premium annuity policies, the GST rate is 1.8 per cent. Rates are the same for all age groups
Earlier, a proposal for rationalising GST on insurance premium got a boost with the Financial Services Department and the Insurance Regulatory and Development Authority of India (IRDAI) supporting the move.
IRDAI view
Making a submission before a Parliamentary panel, the IRDAI said several developed countries, including the European Union and Canada, have exempted insurance products from VAT or GST. This reinforces the argument for providing similar benefits in India to encourage greater insurance penetration, it said.
The insurance regulator argued that increased longevity and healthcare needs necessitate greater health insurance adoption. Extending GST exemption to micro-insurance and senior citizen health policies would benefit disadvantaged sections. The current inconsistency where medical services are exempt, but premiums attract GST creates an unfair burden.
To give relief to disadvantageous and vulnerable sections of society, IRDAI has suggested extending exemption from GST for retail health policies offered to senior citizens, micro-Insurance policies and term insurance policies up to a suitable limit. The Financial Services Department also supports the proposal for GST reduction.
Earlier this year, the Department related Standing Committee on Finance, with a view to making insurance more affordable, recommended that GST rates applicable to health insurance products, particularly retail policies for senior citizens and micro-insurance policies (up to limits prescribed under PMJAY, presently ₹5 lakh), and term policies may be reduced.
