GST cut on insurance premia likely; final rate yet to be decided: Report

IRDAI is expected to present the insurance sector's views to the council during its upcoming meeting, which could take place in May or June.

The central government is considering a reduction in the goods and services tax (GST) on health and life insurance premia from the current 18 percent, though consensus on the final rate remains elusive, according to a Mint report.

While there is broad agreement on lowering the GST rate, discussions are ongoing about whether the revised rate should be nil, 5 percent, or 12 percent, the report said.

Two people aware of the development told Mint that the government is open to fully exempting health and life insurance from GST. However, during a recent meeting with finance ministry officials, the insurance industry proposed a 12 percent rate. This, insurers argue, would enable them to fully claim credit for GST paid on inputs.

Some state ministers, meanwhile, are advocating for a 5 percent GST rate, which they believe would help limit the revenue impact on the exchequer. While some states support allowing insurers to offset this liability against taxes paid on services and goods used in their operations, others oppose the input tax credit mechanism, according to the first person cited earlier, the Mint report added.

The GST Council has asked the Insurance Regulatory and Development Authority of India (IRDAI) to provide recommendations on the matter. IRDAI is expected to present the insurance sector's views to the council during its upcoming meeting, which could take place in May or June.

“All the proposals are likely to be placed before the GST Council when it meets next, possibly in May or June, and the council will take the final call,” the first source told Mint.

Queries sent to the finance ministry, GST Council Secretariat, and IRDAI seeking comments remained unanswered at the time of publishing. Moneycontrol could not independently verify the report.

According to an official from the General Insurance Council — a body representing public and private general insurers — there is broad consensus between the government and insurers to reduce the GST rate on insurance to 12 percent with input tax credit. The industry has assured authorities that any tax reduction would be passed on to customers through lower premium rates, the official said.

The demand for a GST reduction on insurance has been longstanding, particularly due to India’s relatively low insurance penetration. While out-of-pocket spending on healthcare in India has declined from roughly 69 percent in 2013 to around 50 percent by 2021, it remains higher than in major global economies, the Mint report noted, citing World Bank data.