GST Council tax relief on lifetime premium, medical insurance coverage unlikely

The GST Board is unlikely to give tax relief to those seeking life or medical insurance coverage, despite the low penetration of life and health insurance in the country. The Fitment Committee, a panel of central and state government officials working for the GST Board, rejected a proposal to reduce the rate of tax on premiums paid on a host of third-party life insurance policies. This comes as the 47th meeting of the GST Council is due to take place in Chandigarh on Tuesday and Wednesday.

India Today TV has learned that the adjustment committee, in the agenda papers of the GST Council which calls for ‘removal of GST on life and health insurance’, recommended ‘no change’ from at the current 18% GST.

Currently, there are three types of GST for insurance: on insurance risk premiums, on late fees and deferred interest on loans, and on annuity policies that contain no risk. No GST is levied on investments in banks, postal savings banks, etc.

The demand to remove the GST on health insurance is supported by the argument that the 18% GST on policies hampers its penetration. The additional amount is enormous and discourages buyers from purchasing health insurance. However, the committee, supporting the continuation of the levy, said that “this is a new request for exemption and that the exemption/lowering of the GST rate will result in a cascade of taxes on inputs and will result in a distortion of the tax structure”.

The basic GST rate for life insurance is 18%, but for the first premium it is 4.5%, and for the second and subsequent premiums it is 2.25%. For single premium policies, it is only 1.8%. However, in the case of health insurance premiums, it is 18 percent.

Reduction and removal of GST has been in demand for some time due to low penetration of health coverage in India. Large segments of the population end up depending on the public health system. Government-run insurance schemes such as Rashtriya Swasthya Bima Yojana (RSBY), Universal Health Insurance Scheme, Jan Argoya Bima Policy and Niramaya Health Insurance Scheme, serving nearly 34.2 million people in low-income and low-income categories reduced mobility, are already exempt. of the GST.

Company group insurance policies, excluding those provided by state governments, cover 11.8 crores of people, while only 5.3 crores of Indians have individual health insurance policies, according to Statista, a market and consumer data provider.

Another request was to exempt personal insurance lines such as medi-claim, household policy, personal accident policy from GST, which was also rejected by the committee. The application stated that most policyholders pay taxes on their income and that GST is an additional expense. But the committee noted that this is a request for a new exemption and that it would go against the fundamental principles of the GST, and that the ITC on inputs would remain a cost for insurers.

It has also been proposed to grant a general exemption to general microinsurance products which include a health insurance contract, any contract covering property such as a hut, livestock, tools or implements and any personal accident contract which may be individual or collective. However, the Committee determined that since some of these general microinsurance products are already exempted, there is little point in granting a general exemption.

A proposal to exempt third-party liability insurance for commercial vehicles was also rejected. The claim indicates that the mandatory third-party premium on heavy goods vehicles has been abnormally increased in recent years and is high, although the share by category of truck accidents according to government data is much lower. The committee estimated that the rate has already been lowered to 12 from 18 percent. Further reduction will result in revenue, loss and distortion of the ICT chain.

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