Finance Minister Nirmala Sitharaman has told lawmakers that they need to propose to their state governments remove the 18% GST levied currently levied on life and health insurance premiums.
Opposition lawmakers had been calling for the removal of the GST, pointing out that insurance penetration was low in India and the tax hindered market growth.
Speaking during a debate on a Finance Bill, in the Lok Sabha, the lower house of parliament, Ms Sitharaman said that state finance ministers should raise recommendations for the removal of the GST on life and health insurance premiums to the GST Council, reported Press Trust of India.
She pointed out that the tax on medical insurance premiums had been levied even before the introduction of the GST on 1 July 2017. It was later subsumed into the GST.
Furthermore, about three-quarters of GST revenue is allocated to states which should forgo this collection. Of the total GST collection of INR245.29bn ($2.92bn) from health insurance in the last three years, half was sent to state coffers. In addition, roughly 41% of the central government’s share of GST collected from health insurance is devolved back to the states as part of tax devolution as per the Finance Commission's formula.
Previously, the insurance industry has called several times for a reduction in the GST rate on life insurance and health insurance premiums. However, Cabinet Minister Nitin Gadkari reignited the debate seeking the complete removal of GST on health and life insurance premiums.
Members of the GST Council include the minister in charge of finance or taxation or a nominated minister of each state government. The Council serves as a joint form for both the central and state governments to decide on GST matters.