GST Council meeting: Insurance customers can expect a big relief. Details here

Various media reports suggest that the 54th GST Council meeting will discuss the possibility of removing the 18% GST on term life insurance premiums. Various stakeholders in the insurance industry have been advocating for such removal for a long time.

The 54th meeting of the Goods and Services Tax (GST) Council is scheduled to be held on September 9, 2024, in New Delhi.

Industry experts believe that the implementation of this decision would substantially relieve insurance customers who are burdened by additional taxes. The 18% GST on life and health insurance premiums has been controversial for long and many stakeholders are pushing for its removal.

“Several stakeholders, including acting ministers, have requested exemption Goods and Services Tax (GST) on Health and Life Insurance“The GST Council is likely to look favourably on this demand from the industry, especially if the revenue loss due to granting such exemption is not material. However, to enable the full effect of GST exemption to be passed on to the general public, insurance companies should also be entitled to full tax credit, without requiring a reversal of credit due to GST exemption on term insurance,” said Sandeep Pareek, Partner, Indirect Tax, BDO India.

“Currently, the 18% GST on term life insurance premium is seen as another cost that will make it more expensive for people to afford insurance.” “Term life insurance is essentially insurance that acts as a safeguard to ensure that families are protected in the event of the death of the policyholder. Whenever the government levies such high tax rates on such premiums, it discourages people from taking risks by opting for this necessary shield. Further reduction or complete removal of GST may lead to a surge in the purchase of term life insurance, which is still in its infancy in the country,” said Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara Private Limited.

Why should GST on insurance products be removed?

Sandeep Pareek highlights that exempting term insurance products from GST could significantly promote these plans by making them more affordable for the public.

Siddharth Maurya adds: “Reducing or eliminating GST on term insurance premiums could encourage more people to secure their families’ future without additional financial burden. This would also widen the insurance coverage base, encouraging growth in the sector.”

Maurya also believes that such a move 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 that the GST Council will take a forward-thinking approach that will benefit millions of Indians.”

TMC leader and Rajya Sabha MP Derek O’Brien has urged Finance Minister Nirmala Sitharaman to remove GST on health and life insurance premiums. In a letter dated August 24, O’Brien said, “The 18% GST on health and life insurance premiums puts undue pressure on many people, affecting their access to crucial financial protection in the event of illness, accident or premature death. It is our shared responsibility to ensure that this vital safety net remains affordable for all segments of society.”

The GST Council, which comprises the Union Finance Minister and representatives from all states and Union Territories, was set up to oversee decisions on various GST-related matters such as tax rates, exemptions and administrative procedures. It has been instrumental in shaping India’s GST framework.

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