Insurance Premiums Could Drop if GST Rates are Reduced, says Finance Minister

Finance Minister Nirmala Sitharaman has suggested that a reduction in the Goods and Services Tax (GST) on health and life insurance could result in lower premiums for policyholders. Speaking in the Lok Sabha on Monday, she confirmed that the GST Council is set to deliberate on this matter during its meeting on December 21, 2024, as reported by CNBC TV18.

GST Council’s Role in Reducing Insurance Costs

The Minister highlighted that a Group of Ministers (GoM) was constituted following the GST Council’s recommendation in its September 9 meeting to evaluate GST rates on life and health insurance policies comprehensively. If the council approves a reduction, policyholders are likely to experience tangible benefits, with lower premium costs offering much-needed financial relief.

As reported by CNBC TV18, Sitharaman reiterated that in a competitive market, insurers would likely pass on the savings from reduced GST rates to consumers rather than absorbing the difference themselves.

Proposed GST Rate Changes

Currently, an 18% GST is levied on health and life insurance premiums, a rate often criticized for adding to the financial burden of policyholders. However, the GoM has reportedly proposed key changes, including:

• GST exemptions for term life policies and health insurance for senior citizens.
• Potential GST waivers for health insurance policies with coverage up to ₹5 lakh.
• Retaining the 18% GST rate for policies exceeding ₹5 lakh in coverage.

Such adjustments aim to make essential insurance policies more affordable, particularly for low and middle-income families.

Revenue Implications

In the 2023-24 fiscal year, GST collections from life and health insurance premiums totaled ₹16,398 crore, split almost equally between life insurance (₹8,135 crore) and health insurance (₹8,263 crore). Reducing or exempting GST on these policies would have fiscal implications for the government, though these could be balanced by increased policy uptake driven by affordability.

Industry Response and Expert Opinions

The insurance industry has welcomed the potential reforms, emphasizing their importance in increasing insurance penetration in India, which remains low compared to global standards. Industry experts believe that tax exemptions or reductions could encourage first-time buyers to invest in life and health insurance.

Speaking about the development, a senior insurance executive remarked, “A lower GST rate would align with the government’s vision of providing financial protection to all citizens and could significantly boost the uptake of essential insurance products.”

Next Steps

The GST Council meeting on December 21 st will be critical in determining the fate of these recommendations. If the council greenlights these changes, the reforms could set a precedent for making financial safety nets more accessible for millions of Indians.

Policyholders and insurers alike are keenly awaiting the outcome, as lower premiums could pave the way for a more insured and financially secure population.