There’s an ongoing debate around reducing the Goods and Services Tax (GST) on health and life insurance. The government seems open to completely exempting these premiums, but the insurance industry is pushing for a 12% rate.
A reduction in GST on insurance has been a long-pending demand, given India’s low insurance penetration compared to peers.
Sources indicate that discussions within the government suggest a preference for full exemption from GST on health and life insurance. However, at a recent meeting with finance ministry officials, the insurance sector proposed a 12% rate. Their rationale is that this rate would allow companies to fully claim credit for the GST they pay on their operational inputs.
Some state ministers, on the other hand, favor a 5% rate, believing it would lessen the financial strain on the government. Others brought forth the idea of insurers offsetting their tax responsibilities against the GST paid on their operations, while some opposed the concept of input tax credit.
The GST Council, the federal indirect tax body, has asked the Insurance Regulatory and Development Authority of India (IRDAI) for recommendations on the GST reduction. IRDAI is expected to present the industry’s viewpoint to the Council. A source stated that all proposals are likely to be presented at the next GST Council meeting, potentially in May or June, where a final decision will be made. The finance ministry, GST Council Secretariat, and IRDAI did not respond to requests for comment.
An official from the General Insurance Council, representing both public and private general insurers, mentioned a broad agreement between the government and insurers to reduce the GST rate to 12% with input tax credit. The industry representatives have assured that any tax benefits would be passed on to consumers through lower premiums. This move comes as India’s insurance penetration is notably lower than that of its global counterparts.
Sharad Mathur, Managing Director and CEO of Universal Sompo General Insurance Co. Ltd., believes that reducing GST to 12% could boost the affordability and demand for health insurance and term plans, especially for essential coverage. However, he indicated that a lower rate or full exemption could negatively impact insurers. “The 12% rate strikes a balance, offering consumers savings while maintaining insurers’ operational efficiency, ensuring a sustainable market for both,” he said.
Insurers contend that tax exemptions or lower taxation on final services compared to operational inputs complicate tax recovery, potentially leading to increased service prices. This, according to them, distorts the tax system, and rate cuts beyond a certain point may not provide genuine benefits to the consumer.
Rajeev Chugh, CFO at Future Generali India Life Insurance Co. Ltd., stated that a reduced GST rate would allow insurers to offer enhanced customer value through more efficient overall pricing, including GST. “At the same time, the availability of input tax credits for the insurer would minimise additional cost impact to insurers,” he said. Chugh also noted the potential for increased customer uptake, leading to further investment in product segments, business growth, risk diversification, and improved operational efficiency.
Industry experts emphasize that tax is just one aspect influencing the affordability of health and life insurance products. Pavanjit Singh Dhingra, Joint Managing Director of Prudent Insurance Brokers Pvt. Ltd., believes that “A reduction in the GST rates will reduce the cost burden on policyholders, thereby making insurance a more attractive and viable product.”
Dhingra also emphasized that the rising costs of healthcare services are a key concern. “Hence, if premiums are to be reduced, the right way will be to control medical inflation, though a reduction in GST rates will certainly be a big positive move,” he added.
