The Group of Ministers (GoM) has proposed removing the goods and services tax (GST) on health insurance premiums for non-senior citizens with coverage up to ₹5 lakh, according to sources. It has proposed a 5% GST against the current 18% for premiums on health covers above ₹5 lakh, the sources added. The panel has also proposed that senior citizens should be exempted from current 18% GST that they pay on health insurance premiums.
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The move, if adopted in the upcoming GST Council meet in Jaisalmer on December 21, could make healthcare affordable and lower the cost of insurance for policyholders, aligning with the government’s broader agenda of enhancing inclusive healthcare.
The GoM’s recommendation comes amid growing demand for removing or lowering the current GST rate of 18% on life and health insurance policies.
The government garnered a substantial ₹16,000 crore of revenue from GST on insurance policies in FY2023-24, as per a government response in the Lok Sabha. The potential revenue loss on the back of the relief on health insurance premium could come close to ₹2,100 crore.
Meanwhile, in a written reply in the Lok Sabha, Finance Minister Nirmala Sitharaman said the GST Council, in its September 9 meeting, had recommended constituting a GoM to holistically look into the issues pertaining to GST on life insurance and health insurance.
“The matter of review of GST rates on life and health insurance is pending before the GoM. If a recommendation for a reduction in GST rate is made by the GST Council, the cost of insurance to the policyholder is expected to come down on account of the reduction in GST,” she said.
Sitharaman said this while replying to the question on whether a GST cut on health insurance will be a step towards making healthcare more equitable.
To a query on how the government will ensure that insurance companies pass on the benefits of any GST reduction to consumers rather than retaining them through increased premiums, Sitharaman said competitive pricing would bring down the cost of insurance.
“As the GST rates are applicable over and above the insurance premium, if the GST rate is reduced, it is expected to benefit the policyholder directly especially in a competitive market with many insurers, as the cost of insurance will reduce to that extent,” she said.
While welcoming the proposal, experts expressed concern about the 18% GST on health insurance premiums exceeding ₹5 lakh.
“The proposed changes by the Group of Ministers are seen as a positive move, especially the proposed exemptions for senior citizens health insurance and term life insurance policies. If this proposal gets approved, it will ease financial burdens on the elder people and families seeking greater financial security. However, the decision of the council to continue imposing 18% GST on health insurance premiums exceeding ₹5 lakh is sparking concerns. It has been argued that this could raise healthcare costs for middle-class families, particularly for those who have pre-existing conditions or requires specialised care,” said Shivashish Karnani, GST Division, DPNC Global.
Krishan Arora, Partner, Grant Thornton Bharat said, “This proposal appears to be aimed at compensating for potential revenue shortfalls resulting from reduced rates on common-use items and exemptions, such as those related to health and life insurance premiums. By rationalising rates, the GoM’s strategy appears to seek a revenue-neutral position, balancing the anticipated revenue decline from reductions in health and life insurance with the revenue increases from adjustments on other products.”
