GST Relief on Insurance Likely as IRDAI Backs Proposal; GoM to Meet in April

GST Council Expected to Finalize Tax Reduction on Life and Health Insurance in May

The Goods and Services Tax (GST) Council is likely to finalize tax relief measures on life and health insurance premiums at its next meeting, following broad consensus among states and confirmation of support from the Insurance Regulatory and Development Authority of India (IRDAI). The Group of Ministers (GoM) on Insurance is scheduled to meet in April 2025 to finalize its recommendations, which will be presented at the GST Council’s meeting in late April or early May, according to a senior government official.

Developments on GST Relief for Insurance

• IRDAI has submitted its comments supporting GST relief on life and health insurance premiums.
• GoM on Insurance will meet in April to finalize recommendations for the GST Council.
• GST Council expected to decide on tax reduction in its May meeting after reviewing IRDAI’s feedback.
• States have shown consensus in favor of lowering GST on insurance premiums, pending final confirmation.

“The IRDAI has submitted its comments on GST relief on life and health insurance, and they are on board. The GoM on insurance is likely to meet in April to finalize and submit recommendations to the GST Council. The council will likely approve GST relief in its next meeting, and the matter will be resolved,” a senior government official told Moneycontrol.

Current GST Structure and Insurers’ Concerns

At present, life and health insurance premiums attract 18% GST, which has been a point of contention for the insurance sector and policyholders alike. While there have been calls for exemptions or rate reductions, insurers have raised concerns about the impact of removing GST on term insurance, as it could block input tax credit (ITC) and lead to higher costs for consumers.

Concerns Raised by Insurers

• Impact of Exempting Term Insurance from GST:

  • If term insurance is fully exempted, insurers will lose ITC benefits, increasing operational costs.
  • These higher costs will likely be passed on to policyholders, reducing affordability.

• Need for a Balanced Approach:

  • Insurers have suggested keeping a tax structure that allows ITC claims, rather than full exemption.
  • A reduction in GST rate (instead of exemption) could be a viable alternative to prevent higher policy costs.

GoM’s Proposal for Lowering GST on Health Insurance

The GoM, led by Bihar Deputy Chief Minister Samrat Chaudhary, is considering a structured reduction in GST rates, particularly for senior citizens and lower-income groups. The earlier proposal included:

• Full GST exemption for health insurance premiums of senior citizens.
• Lowering GST on health insurance plans (up to ₹5 lakh coverage) from 18% to 5%.
• Reducing GST on term life insurance to make it more affordable.

The demand for a tax cut on insurance has been longstanding, with industry experts highlighting India’s low insurance penetration rate. A lower GST rate is expected to enhance affordability and encourage more people to purchase insurance coverage.

Composition of the Group of Ministers (GoM) on Insurance

The 13-member GoM consists of key state finance ministers and policymakers, including:

• Suresh Kumar Khanna (Uttar Pradesh, Finance Minister)
• Chandrima Bhattacharya (West Bengal, Finance Minister)
• K.N. Balagopal (Kerala, Finance Minister)
• Gajendra Singh (Rajasthan, Health Minister)
• Krishna Byre Gowda (Karnataka, Revenue Minister)
• Pramod Sawant (Goa, Chief Minister)

The final decision now rests with the GST Council, which will evaluate the GoM’s recommendations and IRDAI’s feedback before approving any tax reductions.

Industry Perspective: Impact of GST Cut on Insurance Sector

Potential Benefits of GST Reduction

• Increased Insurance Penetration: Lowering GST will make insurance more affordable, particularly for middle-class and lower-income families.
• Encouraging Senior Citizens’ Health Coverage: A full GST exemption for senior citizens could boost enrollment in health insurance plans.
• Supporting the Government’s Financial Inclusion Goals: Affordable insurance aligns with India’s broader push for financial security and healthcare access.

Challenges to Consider

• Balancing ITC Claims: Exempting term insurance from GST could disrupt insurers’ cost structures, leading to higher premiums.
• Revenue Implications for the Government: A GST cut will reduce tax revenue from the insurance sector, requiring alternate measures to compensate.
• April 2025: The GoM on Insurance will finalize its recommendations based on IRDAI’s inputs.
• Late April/Early May 2025: The GST Council will review and likely approve the revised GST structure for life and health insurance.
• Implementation Timeline: If approved, the revised GST rates could be implemented in the next financial quarter.