Government May Slash GST on Health and Term Insurance
The Indian government is considering a cut in the Goods and Services Tax (GST) on health and term insurance premiums, potentially reducing it from the current 18% to 5% or even zero. This move is part of a broader GST restructuring—dubbed “GST 2.0”—aimed at simplifying tax slabs and easing the tax burden on citizens and businesses.
Balancing Affordability with Industry Needs
While a full GST exemption (nil rate) would lower premiums for customers, it could also block insurers from claiming Input Tax Credit (ITC), raising their operating costs. As a result, a reduced 5% GST is viewed as a practical compromise. It would still allow insurers to claim ITC, while lowering premium costs for consumers.
Stimulating Insurance Uptake and Market Sentiment
Insurers and financial analysts view the proposed GST cut as a significant step toward increasing insurance penetration in India—currently among the lowest globally. The potential policy change led to a surge in insurance company stocks, reflecting strong investor optimism about both affordability and business volume.
Broader Tax Reform Context and Revenue Impact
The GST reform outlines a streamlined two-rate structure with brackets at 5% and 18%, while eliminating the 28% slab. A new 40% tax is proposed for luxury and “sin” goods. However, several states are concerned this overhaul could result in substantial revenue loss—estimated between ₹7,000 to ₹9,000 crore annually—potentially impacting public spending.
