GST relief on life, health insurance to cause Rs 2,600 crore revenue loss annually

The proposed GST relief on term life and health insurance premiums is expected to result in an annual revenue loss of approximately Rs 2,600 crore, according to sources in the GST Council.

The Council on December 21 will discuss GST exemptions for term life insurance premiums covering family members and health insurance premiums for senior citizens, regardless of coverage amount. Also, health insurance policies offering coverage up to Rs 5 lakh are also likely to get GST exemption.

Sources told Moneycontrol, “Rs 200 crore revenue loss annually will be from the exemption of term life insurance premium from GST. The net revenue impact is less for term life insurance because the bulk of the tax was being paid by input tax credit (ITC). For health insurance premium GST relief, the revenue impact is estimated at approximately Rs 2,400 crore annually”.

“If the benefit of GST relief is passed on to consumers in terms of cheaper insurance policies, the amount of insurance policies sold will increase, compensating for the revenue loss. Consumption for insurance may go up by more than 18 percent, as elasticity of demand exists in this sector,” the source added.

GoM on Real Estate

The Group of Minsiters (GoM) on real estate taxation has not reached a consensus and thus will not be presenting its report at the December 21 meeting. “The group has neither submitted a final or interim report, and hence the matter is not on the agenda for the upcoming meeting,” the  source clarified.

GoM on Cess

The GST Council is likely to grant a six-month extension to the GoM on Cess, chaired by Minister of State for Finance Pankaj Chaudhary. The GoM is tasked with exploring taxation mechanisms for luxury and demerit goods post the abolition of GST compensation cess in March 2026.

“The GoM was initially scheduled to submit its report by December 31, 2024, but ongoing deliberations and additional legal and procedural complexities necessitate more time,” the source said.

IGST Report

The report on IGST settlement, which has been finalised, will also be a key agenda item for the December 21 meeting. The report aims to address the negative balance in IGST and propose measures to recover excess IGST disbursed to states.

“The report suggests how to improve the IGST settlement process so that every state gets its dues. It highlights weaknesses in the system that require urgent attention,” the source noted.

The committee, chaired by the Additional Secretary of Revenue, includes officers from both the state and central governments. It was formed to address systemic issues in IGST disbursement and ensure equitable distribution among states.