Health and life insurance policy holders stand to benefit from the central government proposing an exemption for insurance policies for individuals from the Goods and Services Tax.
At present, 18 per cent GST is applicable on health and life insurance premiums. The exemption of GST on insurance will cost the exchequer ₹9,700 crore annually.
Samrat Choudhary, Bihar deputy chief minister and convenor of 13 member insurance GoM (group of ministers), said that the Centre has made the proposal of exempting insurance from GST at the meeting of the GoM on Wednesday.
Almost all states were in favour of the proposal, but have asked the GST council to work out a mechanism by which the benefits of the rate cut could be passed on to the policyholders. Notably, Bengal chief minister Mamata Banerjee had written to Union finance minister Nirmala Sitharaman in August 2024 to remove GST on health and life insurance policies.
“We made it clear that the GST reduction benefit should go to policyholders and not companies. States wanted it (tax rate) to be brought down or exempted. At the same time, many states told the (GoM) meeting that some mechanism must be developed so that the rate cut benefit reaches the people. The GST council will decide on a mechanism,” said Telangana deputy chief minister Mallu Bhatti Vikramarka, who is also a member of the GoM.
The GoM on health and life insurance, which was set up in September, will deliberate and submit its report to the GST council for a final decision.
The panel, which includes ministers from Uttar Pradesh, Rajasthan, Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu and Telangana, has been mandated to submit its report to the GST Council by October end.
“The Centre’s proposal is clear that individual insurance policies should be exempt from GST. This has been discussed, and the GoM report will be presented to the Council. All members have given their approval to lower rates. Some states have given their own views,” Choudhary said after the meeting of the GoM.
The insurance industry has welcomed the Centre’s decision to lower GST on insurance, which has been a long-standing demand.
“Lower taxation will directly make insurance more affordable, particularly for middle-class households, rural population that often perceives premiums as a financial burden. This move is aligned with the national vision of promoting wider financial inclusion and resilience,” said Rakesh Jain, CEO at Reliance General Insurance.
Jain, however, said that there is a need to address the inverted duty structure in the industry, which leads to increased operational costs and creates financial inefficiencies.