GST Council likely to take up 4 Options to provide GST Relief on Health Insurance

The Goods and Services Tax (GST) Council is expected to consider on four options for tax treatment of health insurance at its meeting on Monday, with the cost to the exchequer ranging from about Rs.650 crore to Rs.3,500 crore.

These four options were developed following a thorough analysis by the Council’s fitment panel, which includes revenue officials from both the central and state governments and in response to a request from the Department of Financial Services (DFS) to lower taxes on health insurance products in order to make them more affordable and accessible.

According to officials, the fitment panel is expected to present the Council with a detailed report outlining these options, which include a full exemption for all health insurance premiums and reinsurance, as well as a reduction in the GST rate on health insurance services from 18% to 5%.

Other options include exempting premiums paid by senior citizens and premiums with coverage up to Rs.5 lakh, or just exempting premiums paid by senior citizens from the GST regime.

Each of these four recommendations has various financial implications of Rs. 3,495 crore, Rs. 1,730 crore, Rs. 2,110 crore, and Rs. 645 crore respectively.

In a separate action, the panel discussed exempting life insurance premiums from the GST. It proposed limiting the exemption to pure-term individual life insurance and reinsurers, with a potential revenue impact of Rs.210 crore.

However, it emphasized that any reduction in life insurance taxes must be conditioned on insurance firms passing on the advantages to their consumers.

The recommendations of the panel were based on DFS data, which revealed that total health insurance premiums in India for FY23 were Rs.90,032 crore, with the individual health insurance segment accounting for Rs.35,300 crore or 39% of the total. At the current 18% GST rate, the government collected Rs.6,354 crore in individual health insurance premiums.

The DFS claims that decreasing the GST on health insurance would help solve India’s low insurance penetration by lowering prices, encouraging more individuals to buy insurance, and selecting for higher coverage.

It also believes that increasing the number of insured individuals will balance the short-term loss in GST revenue, thereby supporting the central government’s attempts to provide a minimum social covering net for all citizens and aligning with the “Insurance for All” vision for 2047.

Union Finance Minister Nirmala Sitharaman responded to the amendments to the Finance Bill, 2024, saying, “Taxation on medical insurance existed even before the introduction of GST. Prior to the introduction of GST, medical insurance was subject to a pre-GST tax. This is not a new issue; it was present in all states.”

Her statement came in response to Rajya Sabha MPs’ demands for the elimination of the GST on medical insurance.