Council defers decision on GST relief for life, health insurance premiums

Finance Minister Nirmala Sitharaman chaired the 55th GST Council meeting on December 21

The GST Council deferred a decision to exempt and reduce the Goods and Services Tax on health and life insurance premiums during its meeting on December 21 since the ministers' panel requires more time to arrive at a consensus.

A Group of Ministers (GoM) was said to have recommended exempting GST on health insurance for senior citizens and term life insurance as well as lowering the indirect tax rate to 5 percent on health insurance with a coverage of Rs 5 lakh.

Presently, premiums paid on life and medical insurance largely attract a GST rate of 18 percent.

"The GoM on health insurance related GST work requires more time as IRDAI's inputs are awaited. GoM on insurance has discussed relief on health, life insurance in detail. But after getting IRDAI's inputs the GoM will finalise report," Finance Minister Nirmala Sitharaman said during a briefing after the GST Council meeting.

It is expected that 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 as elasticity of demand exists in this sector.

The GoM's proposal on giving relief on tax on premiums of health and life insurance policies is expected to result in an annual revenue loss of approximately Rs 2,600 crore.

GoM on Cess

The GST Council has granted extension with no timeline to the GoM on Cess, Sitharaman said. 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 have necessitated more time.