The Group of Ministers (GoM) accountable for reviewing GST on insurance coverage companies will meet in New Delhi on August 20 to look at the present tax construction on life and medical insurance. The main focus of the assembly is to judge GST charges relevant to varied insurance coverage classes and think about attainable reductions. These embrace particular person, group, and household floater medical insurance insurance policies, particularly these catering to senior residents, middle-class households, and people with psychological sickness.
The assembly may even think about tax charges on life insurance coverage merchandise akin to time period insurance coverage and investment-linked plans, in addition to reinsurance for these classes.
In accordance with knowledge collected by the Ministry of Finance, over 80 per cent of the premiums collected from particular person medical insurance insurance policies come from plans providing protection of as much as Rs 10 lakh. Senior citizen-specific insurance policies contribute round 18 per cent of the entire premiums within the particular person medical insurance phase.
The 66th Report of the Standing Committee on Finance has underscored the pressing have to rationalise GST charges on insurance coverage merchandise. It highlighted that the present GST fee of 18 per cent on time period and medical insurance considerably will increase the price burden, making insurance coverage much less accessible to people. The report really helpful that GST charges be lowered, notably for retail medical insurance insurance policies for senior residents, micro-insurance plans with protection as much as Rs 5 lakh (akin to these below PMJAY), and time period life insurance coverage.
Regardless of repeated appeals over time, the GST Council has up to now kept away from decreasing these charges. Within the thirty seventh GST Council assembly held in September 2019, the proposal to decrease GST on pure time period life insurance coverage from 18 per cent to five per cent was rejected. The Council expressed considerations about potential income losses and identified that the efficient tax fee on premiums was already comparatively low, between 1.8 and 4.5 per cent. It additionally cautioned that exemptions may end in blocked Enter Tax Credit score (ITC) and elevated compliance challenges for insurance coverage suppliers.
Equally, in the course of the forty seventh GST Council assembly in June 2022, requests to take away GST on life and medical insurance had been turned down once more. The Council argued that such exemptions would disrupt the tax construction and result in cascading enter taxes. As an alternative, the Council restricted exemptions to particular postal companies, whereas sustaining present tax charges on insurance coverage to keep away from income leakage. The 55th GST Council in Jaisalmer additionally heard the proposals however determined to provide it extra time, for the GoM to analyse it.Â
Now, recent proposals are being thought of forward of the upcoming 56th GST Council assembly. These embrace exempting particular person time period life insurance coverage insurance policies and their reinsurance from GST. Whereas no quick modifications are anticipated for group time period life insurance coverage, the GoM might revisit this at a later stage. On the medical insurance entrance, the proposals counsel exempting particular person insurance policies for senior residents and people providing protection as much as Rs 5 lakh from GST, together with their reinsurance. Moreover, the GST fee on insurance coverage insurance policies for individuals with psychological sickness could also be reviewed by the Fitment Committee, which has been directed to hunt enter from the Division of Monetary Providers.
A closing resolution on these modifications is predicted quickly after the GoM assembly, with the proposals more likely to be introduced on the subsequent session of the GST Council for approval.
