Individual Life And Health Insurance Policies To Be Exempt From GST

The Goods and Services Tax (GST) on health and insurance products, which stood at 18 per cent, has been cut to zero, in a major revamp of the GST rate structure, announced Finance Minister Nirmala Sitharaman in a late-night press conference Wednesday. 

Ms Sitharaman said that the decision of the GST Council has been taken with full consensus and all ministers supported rate rationalisation.

"This was so much questioned last year. In parliament, Opposition members questioned, saying, 'You want to tax insurance premiums?' After a detailed study, taking stakeholders into confidence, we have come up with this so that families and also people who take individual insurance, get the benefit. Of course, we will make sure that companies pass on this benefit to people who are taking insurance. We want to give people who are looking to get medical insurance the relief," said Ms Sitharam. 

The panel approved simplifying the GST structure from the current four slabs -- 5, 12, 18 and 28 per cent -- to a two-rate structure -- 5 and 18 per cent. A special 40 per cent slab is also proposed for a select few items such as high-end cars, tobacco and cigarettes.

The move to simplify the tax regime, first announced by Prime Minister Narendra Modi in his Independence Day speech, comes as India's exports to the US face a 50 per cent tariff - the highest in the world.

The decision by the GST Council would bring down the overall premium as the tax component has significantly come down. Improved affordability may encourage more households to purchase health cover, supporting broader financial inclusion goals.

The government has collected Rs 16,398 crore from goods and services tax levied on healthcare and life insurance in FY24.

Of this, Rs 8,135 crore from life insurance and Rs 8,263 crore from health insurance. Additionally, Rs 2,045 crore was also raised as GST from re-insurance on life and health insurance last fiscal, including Rs 561 crore from reinsurance on life and Rs 1,484 crore on health care.

Thermometers, medical-grade oxygen, diagnostic kits, reagents, glucometers, test strips and corrective spectacles have also seen GST rates cut to 5 per cent, easing the burden on patients and healthcare providers.

While lower premiums are expected to boost demand, insurance companies could see a 3-6 per cent impact on combined ratios (CR) in the retail health segment, primarily due to slower repricing of renewals which may take 12-18 months. 

HSBC's analysis suggests that a full exemption could reduce health insurance premiums by around 15 per cent. However, the government may face a revenue shortfall of USD 1.2-1.4 billion annually from GST on premiums if exemptions are granted, the report had said.

(With agency inputs)