GST GoM reaches consensus on exemptions for term life and health insurance

To formalise these proposals, the GoM is scheduled to submit a report to the GST Council by October 31.

In a significant move, the Goods and Services Tax (GST) Group of Ministers (GoM) reached a consensus on October 19 to exempt term life insurance premiums and health insurance for senior citizens from the GST net. The GoM has also agreed to propose a GST exemption for health insurance policies offering coverage up to Rs 5 lakh, sources told Moneycontrol.

“Premiums paid for all Individual Term Life Insurances would be exempted from GST. It will also cover family members associated with the individual. The GoM members agreed to the proposal,” a source revealed.

Additionally, the GoM has proposed a complete GST exemption for health insurance premiums paid by senior citizens, regardless of the coverage amount. “Premiums paid for Health Insurances by senior citizens (irrespective of coverage) would be exempted from GST. Premiums paid for health insurance (up to a coverage of Rs 5 lakh) by other individuals would be exempted from GST,” the source added.

The GoM is expected to submit a formal report to the GST Council by October 31, which will be reviewed and discussed in the Council’s next meeting. An additional meeting may be scheduled to finalise the report’s details and ensure all proposals are thoroughly examined.

“The revenue loss from these decisions on lowering GST on life and health insurance will not be much,” he said.

The revenue loss from the exemption of term life insurance from GST is estimated to be around Rs 200 crore annually, another source told Moneycontrol.

Moneycontrol on August 30 had reported that the GoM proposal is likely to focus on exempting term life insurance policies from the goods and services tax (GST) while continuing to tax insurance policies with an investment component, a decision that could boost demand for pure protection policies.

This decision is anticipated to make term life insurance more affordable, potentially boosting its adoption among Indians.

Term vs Investment-Linked plans

Term Life Insurance is a pure protection plan that offers financial security to the beneficiaries in case of the policyholder’s death during the term of the policy. It provides coverage for a specified period, usually ranging from 10 to 30 years. The premiums for term life insurance are generally lower, as it solely offers a death benefit without any savings or investment component. If the policyholder outlives the term, there is no payout unless the policy includes a return of premium rider.

On the other hand, investment-linked life insurance policies combine life coverage with an investment component. These policies not only offer a death benefit but also accumulate cash value over time, which can be used for investment purposes. The premiums are higher than term life insurance, reflecting the dual purpose of providing protection and investment growth.