Fully exempting or lowering the GST on health insurance and re-insurance could lead to a revenue loss of up to ₹3,500 crore, officials involved in preparing proposals for GST Council have said. However, the Fitment Committee (the committee of officers under the Council), is unlikely to give any specific recommendations and leave the matter for the all-powerful body of Centre, States and Union Territories with legislature.
The Council is scheduled to meet on Monday and deliberate reducing or even fully exempting GST on life and health insurance premium. As on date, the GST rate on premia for health insurance, term insurance plans and unit-linked insurance plans, attract 18 per cent GST. On endowment plans, the GST is applied differently. While it is 4.5 per cent for premium paid during the first year, it is 2.25 per cent from the second year. For life insurance in the form of single premium annuity policies, the GST rate is 1.8 per cent. Rates are the same for all age groups and can be reviewed based on the recommendation of the GST Council.
Four options
Sources say the fitment committee is likely to present four options for GST on health insurance premium: full exemption, exemption only for senior citizens, exemption for senior citizen along with policy having coverage up to ₹5 lakh and reducing rate to 5 per cent without Input Tax Credit (ITC), and that these could result in revenue loss of ₹3,500 crore, ₹650 crore, ₹2,100 crore and ₹1,750 crore, respectively. However, “the committee is unlikely to propose any particular option and may request the Council to take a final call,” a source said.
Earlier, this month, in a response to a question, the Lok Sabha was informed that health, reinsurance premia fetched ₹24,500 crore in GST over 3 years till FY23-24. Later, the issue of GST on health became a big political issue during last session of Parliament. Responding to this, Finance Minister Nirmala Sitharaman pointed out that even before the rollout of GST, States used to levy tax on insurance premiums.
“Out of the 18 per cent GST on medical insurance, nearly half goes directly to the States. Of the remaining half, 41 per cent moves into the devolution pool, which also goes to States. This means more than ₹74 out of every ₹ 100 collected goes to the States,” she said, dismissing allegations that money collected through GST is “pocketed” by the Centre.
Further, Sitharaman said Parliament is not the right forum to decide about GST, but the GST Council. Also, the issue of GST on insurance has been discussed nearly three times in the GST Council, yet this debate still keeps surfacing.
In February this year, the Parliamentary Standing Committee on Finance recommended lowering of GST on health insurance, particularly for senior citizens. It underlined that there is a need to rationalise the GST rate on insurance products, especially health and term insurance, which is 18 per cent now. The high GST rate results in a high premium burden which acts as a deterrent for purchasing insurance policies, the committee said.
To make insurance more affordable, the committee said: “GST rates applicable to health insurance products, particularly retail policies for senior citizens and micro-insurance policies (up to limits prescribed under PMJAY or Pradhan Mantri Jan Aarogya Yojana, now ₹5 lakh) and term polices, may be reduced.”
