GST Council to Consider Full Insurance GST Exemption Ahead of Monsoon Session
The Goods and Services Tax (GST) Council is likely to consider a proposal to fully exempt term life insurance and health insurance for senior citizens from GST in its upcoming meeting. The council is expected to take this up before the start of the monsoon session of Parliament, as part of a larger move to make insurance more affordable and expand coverage across vulnerable demographics.
GoM Reaffirms Exemption Proposal
A Group of Ministers (GoM) tasked with studying insurance taxation is expected to stick to its earlier recommendation for a full exemption. The proposed relief includes zero GST on term life insurance premiums and health insurance policies for individuals above 60 years of age. Additionally, it covers health policies with a sum insured of up to ₹5 lakh, particularly to benefit middle-class and lower-income households.
This recommendation is being positioned as a socially beneficial reform aimed at boosting insurance penetration, which continues to lag significantly behind global standards.
Tax Burden Suppresses Insurance Uptake
Currently, insurance premiums—both life and health—are taxed at 18%, which significantly increases the out-of-pocket cost for policyholders. This has long been seen as a barrier to widespread adoption of insurance, especially among first-time and low-income buyers. The move to remove GST altogether could serve as a fiscal stimulus for the insurance sector while enhancing public safety nets.
The exemption, however, comes with a projected cost to the exchequer. Estimates suggest that the annual revenue loss could be around ₹2,600 crore, with ₹200 crore from term life insurance and the remaining ₹2,400 crore from health insurance schemes. Despite this, several stakeholders believe that broader coverage and long-term social gains would justify the short-term fiscal impact.
Industry Voices Concerns on Input Tax Credit
While the consumer side is likely to benefit from the GST relief, insurance providers have expressed reservations. A full exemption would remove their ability to claim input tax credits on services like IT infrastructure, marketing, and third-party administration. This could lead to a rise in operational expenses for insurers, potentially offsetting the price benefit intended for policyholders unless compensated through other mechanisms.
The GST Council now faces the challenge of balancing fiscal priorities with public welfare. With the GoM and regulatory bodies aligned on the recommendation for full exemption, the final decision will rest on whether the council views the social benefits as outweighing the revenue loss.
A resolution is expected before the monsoon session begins, and it may well determine the next phase of insurance penetration and financial inclusion in India.
