Potential GST Rate Cut on Insurance Premiums
The Goods and Services Tax (GST) on health and life insurance premiums is likely to be reduced, according to a recent report by CNBC-Awaaz. Currently, these premiums are subject to an 18% GST, but a proposal has been submitted to the GST Rationalisation Committee to lower this rate to 5%. This development, if approved, could have significant implications for policyholders and the insurance industry at large.
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Proposal Details and Committee Stance
The proposal submitted to the GST Rationalisation Committee suggests a reduction in GST on health and life insurance premium payments from the current 18% to 5%. This significant decrease would make insurance more affordable for millions of Indians
Government's Perspective and Fiscal Considerations
Over the past three years, the government has collected approximately ₹24,000 crore in GST from the health and life insurance segment. The significant revenue generated from this sector underscores the financial implications of any GST rate reduction.
Finance Minister Nirmala Sitharaman, in response to this issue in Parliament, noted that a substantial portion of the GST collected (up to 74%) is allocated to states.
Historical Context and Political Support
The conversation around reducing GST on insurance premiums is not new. In July, Minister of Road, Transport, and Highways Nitin Gadkari proposed the withdrawal of the 18% GST on life and medical insurance premiums, describing it as a tax on "life's uncertainties."
Former minister Jayant Sinha, who played a key role in the implementation of GST, also advocated for the elimination of GST on life and health insurance, citing these as essential services in modern living.
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Looking Ahead: Upcoming GST Council Meeting
The GST Rationalisation Committee is scheduled to meet on August 22 to discuss the proposal further. The outcome of this meeting will be closely watched, as it will provide clarity on the future GST rates for health and life insurance premiums.
Should the committee recommend a rate cut, it would represent a significant policy shift aimed at making insurance more accessible to the general population.
Conclusion: Balancing Affordability and Revenue
While the proposal to reduce GST on insurance premiums is a positive step toward making these essential services more affordable, it must be balanced against the need to maintain fiscal stability, particularly for state governments. The upcoming discussions and decisions by the GST Rationalisation Committee and the GST Council will be pivotal in shaping the future of insurance in India.
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