The Indian government is evaluating a steep cut in GST on health and life insurance premiums, potentially lowering it from the current 18% to 5%, and possibly even removing the tax altogether. This is part of the broader GST 2.0 reform aimed at simplifying India’s indirect tax system
Why the Change?
- Affordability & Accessibility: Slashing GST will lower the cost for policyholders, especially essential amid low insurance penetration rates in India—reported at around 3.7–3.8% of GDP
- Encouraging Coverage: Reduced taxes may motivate more individuals, particularly middle- and lower-income groups, to invest in insurance
Industry & Market Reaction
News of the potential cut sparked optimism—insurance stocks surged up to 5%, reflecting investor confidence in a spike in demand and improved business outlook
GST 2.0: The Bigger Overhaul
This move forms part of an ambitious overhaul likely to introduce just two GST slabs: 5% and 18%, with a high 40% tax level reserved for luxury or “sin goods.” Simplicity and consumption stimulus are key goals
What Experts and Officials Are Saying
A Group of Ministers (GoM) tasked with reviewing insurance tax has recommended either full exemption for certain policies or a reduced GST rate. Reports indicate a leaning toward 5% with Input Tax Credit (ITC) rather than full exemption, to avoid cost pressures on insurers
While full exemption—especially for senior citizens or term life policies—was proposed, experts warn it may block ITC, which could inadvertently raise premiums for consumers
Concerns & Cautions
- Revenue Loss: A full exemption may cost the exchequer several thousand crores—estimated around ₹2,600 crore annually
- ITC Implications: Without GST, insurers lose access to input tax credits on expenses like IT and marketing. That could raise operating costs unless a lower rate with ITC is preserved
- State Consensus: Some states are wary of revenue loss and may push back during council discussions
Summary Table
| Aspect | Details |
|---|---|
| Current GST Rate | 18% on health and life insurance premiums |
| Proposed Rate | Possibly lowered to 5% or even fully removed |
| Expected Benefits | Improved affordability, higher insurance penetration, market optimism |
| Risks | Revenue loss, loss of ITC for insurers, state-level resistance |
| Timeline | Decision expected around Diwali or next GST Council meeting |
