In India the Goods and Services Tax (GST) Council is likely to consider reducing or removing the 18% GST on life and health insurance premiums.
According to a news report in the financial daily Financial Express this proposal that has virtually received unanimous support, including from the regulator, the Insurance Regulatory and Development Authority of India (IRDA), would provide major relief to the middle class and boost insurance penetration in the country.
According to official sources, however, it is quite likely that the GST Council is considering a reduction in GST rates on insurance premiums rather than a complete exemption. The Council may bring the 18% GST down to 5%, while still allowing insurers to claim input tax credit.
Members of the Group of Ministers (GoM) reviewing the tax structure on insurance premia had largely supported the rate cut, cautioning that a full exemption could inadvertently raise costs due to the accumulation of unclaimed input taxes. However, some voices within the insurance industry argue that even a 5% rate may lead to unused tax credits and are instead advocating for a 12% GST rate on output to ensure better credit utilisation.
The GoM had also reportedly recommended the complete removal of GST on term life insurance and health policies for senior citizens. Apart from this, GST exemption has also been talked about on policies with health cover up to INR5,00,000 ($5825).
According to the Financial Express report if these recommendations are approved, it will be considered a big step towards making health and life insurance much more affordable for the general public. The penetration of health insurance in the country is estimated to be still less than 40%, and the contribution of insurance premium to GDP is also much below the world average.
On the other hand, the cost of treatment and healthcare is constantly increasing, due to which out-of-pocket medical expenses are the highest in India compared to other Asian countries.