The 54th Goods and Services Tax (GST) Council meeting, scheduled for September 9, 2024, in New Delhi, may discuss the possibility of removing the 18 percent GST on term life insurance premiums, according to multiple media reports. Various stakeholders in the insurance sector have long advocated for this removal.
Industry experts believe enacting this decision, i.e., eliminating this tax, would significantly alleviate the financial burden on insurance customers. The 18 percent GST on life and health insurance premiums has long been contentious, with many stakeholders pushing for its removal.
“Multiple stakeholders, including sitting ministers, have requested to exempt GST on term and health insurance. Likely, the GST Council may favourably consider this industry demand, especially if the revenue loss due to the grant of such exemption is not major. However, to allow the full effect of exemption from GST to be passed on to the public at large, the insurance companies would also need to be allowed full input tax credit without requiring a reversal of credit due to exemption from GST on term insurance,” said Sandeep Pareek, Partner, Indirect Tax, BDO India.
Currently, the 18 percent GST on term life insurance premiums adds to the cost of insurance.
“Term life insurance is essentially an insurance that acts as a safeguard to guarantee that families are protected in the case of the policy holder’s death. Whenever the government applies such high taxation rates on such premiums, it dissuades individuals from taking risks by opting for this necessary shield. Further lowering or complete elimination of GST may cause the enhanced purchase of term life insurance, which is still in its infancy in the country,” said Siddharth Maurya, Founder and Managing Director of Vibhavangal Anukulakara Private Limited.
Sandeep Pareek highlights that exempting GST from term insurance products could significantly promote these plans by making them more affordable for the public.
Siddharth Maurya adds, “Reducing or removing GST on term insurance premiums could encourage more people to secure their families' futures without additional financial burden. This would also expand the insurance coverage base, fostering industry growth.”
Maurya also believes such a decision could transform India’s insurance sector. “It would demonstrate the regulator's commitment to making life insurance more accessible and effective as a risk management tool. We anticipate the GST Council will adopt a forward-thinking approach that benefits millions of Indians.”
Trinamool Congress (TMC) leader and Rajya Sabha MP Derek O'Brien urged Finance Minister Nirmala Sitharaman to eliminate the GST on health and life insurance premiums. In a letter dated August 24, O'Brien stated, “The 18% GST on health and life insurance premiums places an undue strain on many, affecting their access to crucial financial protection in times of illness, accidents, or untimely death. Our shared responsibility is to ensure that this vital safety net remains affordable for all segments of society.”
The GST Council, which includes the Union Finance Minister and representatives from all States and Union Territories, was created to oversee decisions on various GST matters, such as tax rates, exemptions, and administrative procedures. It has been instrumental in shaping India's GST framework.
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