Goods and Services Tax (GST)

GST on Health and Life Insurance Premiums

Note4Students

From UPSC perspective, the following things are important :

Prelims level: GST on Health Insurance

Why in the News?

  • Insurance premiums on health and life policies have increased this year, and the 18% Goods and Services Tax (GST) has made insurance less affordable for many people.
    • Medical inflation, estimated at 14% towards the end of last year, along with increased premiums, has made buying medical insurance difficult for many.

What is the GST on Health and Life Insurance Premiums?

  • GST replaced all indirect taxes like service tax and cess from July 1, 2017.
  • Currently, GST on health and life insurance policies is fixed at 18%.
  • According to the formula, the Centre collects 9% GST with a matching collection by states.
    • Before GST, life insurance premiums were subject to 15% service taxes, including Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess.

Rational behind the Tax

  • GST Council Recommendations:
    • GST rates and exemptions on all services, including insurance, are prescribed on the recommendations of the GST Council, which includes the Union Finance Minister and ministers nominated by state governments.
    • Insurance is considered a service, and policyholders pay tax on their premiums, generating significant revenue for the government.
  • Tax Deductions:
    • Insurance policies allow certain deductions while computing income tax under Sections 80C and 80D of the Income Tax Act, 1961. Customers can avail deductions on the premium, including the GST applicable.

Arguments for Withdrawing the GST on Premiums

  • High Premium Increases:
    • Significant increases in premiums on health insurance policies this year have been observed, with some public sector insurers hiking premiums by 50%.
    • The renewal rate of policies is declining due to frequent premium hikes and medical inflation.
  • Comparative GST Rates:
    • The Confederation of General Insurance Agents’ Associations of India points out that GST on insurance in India is the highest in the world.
    • The high GST rate is seen as a deterrent to insurance penetration, which conflicts with the goal of “Insurance for All by 2047”.
  • Recommendations for Rationalisation:
    • The Standing Committee on Finance recommended rationalising the GST rate on insurance products to make them more affordable.
    • Suggestions include reducing GST rates for health insurance, especially for senior citizens, micro-insurance policies, and term policies.

Insurance Penetration in India:

  • According to a Swiss Re Sigma report, insurance penetration in India’s life insurance sector reduced from 3.2% in 2021-22 to 3% in 2022-23, while the non-life insurance sector remained stagnant at 1%.
  • Overall insurance penetration reduced to 4% in 2022-23 from 4.2% in 2021-22.

 

PYQ:

[2018] Consider the following items:

1. Cereal grains hulled

2. Chicken eggs cooked

3. Fish processed and canned

4. Newspapers containing advertising material

Which of the above items is/are exempted under GST (Goods and Services Tax)?

(a) 1 only

(b) 2 and 3 only

(c) 1, 2 and 4 only

(d) 1, 2, 3 and 4

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