GST relief on insurance likely as IRDAI on board; GoM to meet in April

The GST Council had previously deferred a decision on exempting or reducing GST on health and life insurance premiums

The Insurance Regulatory and Development Authority of India (IRDAI) has submitted its comments on goods and services tax (GST) relief on premiums paid for life and health insurance, paving the way for a final decision. The group of ministers (GoM) on insurance is likely to meet in April to finalise its recommendations for the GST Council. The council is expected to consider the proposals at its next meeting in May, a senior government official said.

“The IRDAI has submitted its comments on GST relief on life and health insurance. IRDAI is on board. The GoM on insurance is likely to hold its meeting in April to finalise and submit its recommendations to the GST Council. The GST Council is likely to give GST relief on life and health insurance in its next meeting, which will be held in April-end or early May. Then probably the insurance thing will be sorted. The states were in consensus on giving GST relief to the insurance sector, but a decision was not taken because IRDAI had not given its comments,” the official told Moneycontrol.

He added that it was essential that the IRDAI should be party to it to avoid charges of not being consulted, he added.

The GoM, led by Bihar's Deputy Chief Minister Samrat Chaudhary, will finalise its report after reviewing the comments from IRDAI. The GST Council had previously deferred a decision on exempting or reducing GST on health and life insurance premiums at its meeting on December 21, awaiting further input from the regulator.

The 13-member GoM includes Uttar Pradesh finance minister Suresh Kumar Khanna, West Bengal finance minister Chandrima Bhattacharya and Kerala finance minister KN Balagopal. Other members include Rajasthan’s health minister Gajendra Singh, Karnataka’s revenue minister Krishna Byre Gowda and Goa chief minister Pramod Sawant.

Insurers’ concerns 

At present, life and health insurance premiums attract 18 percent GST. Life insurance companies have opposed a proposal to exempt term insurance premiums from GST, arguing that it would block input tax credit (ITC) and increase costs for policyholders. Insurers have submitted a detailed representation to the government and the GoM, stating that insurance should be kept at a tax rate structure, which allows ITC claims.

Under the existing system, insurers can offset taxes paid on business expenses—such as IT infrastructure, marketing and administrative costs—against the GST collected from policyholders. If term insurance premiums are exempted from GST, insurers would lose the ability to claim ITC, leading to higher operational costs. These costs would ultimately be passed on to policyholders, negating the intended benefit of exemption.

Proposal to lower GST on health insurance

The GoM was earlier said to have recommended exempting GST on payments towards health insurance policies for senior citizens and term life insurance, as well as reducing the GST rate to 5 percent on health insurance policies with a coverage of up to Rs 5 lakh. The demand for a GST reduction on insurance has been a longstanding one, particularly given India’s low insurance penetration rate. Lowering the GST rate is seen as a way to make insurance more affordable and increase coverage among the population.

A final decision on the matter now hinges on the GST Council's approval, which will be influenced by the GoM's recommendations and IRDAI's feedback.