In recent developments, the Goods and Services Tax (GST) Council is exploring significant tax reforms that could reshape the landscape of health insurance in India. The council is actively considering reducing the GST on health insurance premiums, a move that could make these policies more affordable for millions of Indians.
Currently, health insurance premiums are taxed at 18% under the GST regime, which has been a contentious issue for consumers and industry stakeholders alike. As part of its ongoing effort to make essential services more accessible, the GST Council is mulling over several options that could either reduce or completely exempt these premiums from GST. This potential change is seen as a step toward improving insurance penetration in the country, which remains relatively low despite its crucial role in healthcare financing.
GST Council Considers Lowering Tax Rates on Health Insurance
The potential reduction of GST on health insurance premiums is a welcome move that could bring significant relief to consumers and stimulate broader participation in the health insurance market. By lowering the financial barrier to health insurance, the GST Council aims to make healthcare more accessible to all Indians. As the decision is expected in November 2024, consumers and businesses alike are eagerly awaiting the outcome, which could herald a new era of affordable health coverage.
| Key Information | Details |
|---|---|
| Current GST Rate | 18% on health insurance premiums |
| Proposed GST Rate | Potential reduction to 5% or full exemption for certain categories |
| Impact on Revenue | Reduction could cost the exchequer between ₹650 crore and ₹3,500 crore annually |
| Target Groups | Senior citizens, middle-class families, mental illness patients, and others |
| Decision Timeline | The final decision is expected by November 2024 based on the Group of Ministers (GoM) report |
| Additional Considerations | Proposal includes terms for individual, family floater, and group insurance plans |
Why is GST Reduction on Health Insurance Necessary?
The current 18% GST on health insurance premiums is seen as a burden by many, especially senior citizens and those from lower- to middle-income families. Health insurance plays a critical role in covering unexpected medical expenses, and high tax rates make these policies less affordable. Lowering the GST would not only reduce the premium amounts but also encourage more individuals and families to opt for comprehensive health coverage.
India has a low insurance penetration rate, especially in health insurance. According to recent data, the total health insurance premiums collected in India during the fiscal year 2023 stood at ₹90,032 crore, with individual health insurance accounting for about ₹35,300 crore of this total. With the current 18% GST, the government collected approximately ₹6,354 crore from health insurance premiums alone. Reducing the tax rate would encourage wider participation in health insurance and support the government’s long-term vision of “Insurance for All” by 2047.
Proposals Under Consideration
The GST Council’s fitment panel has presented four potential options to the Council for consideration:
- Reduction to 5% GST Without Input Tax Credit (ITC): This option would lower the tax rate to 5%, but insurers would not be able to claim input tax credits on their expenses. This is likely to have a revenue impact of ₹3,495 crore annually.
- 5% GST With ITC: Another option is to reduce the GST to 5% but allow insurers to claim input tax credits. This could result in a moderate reduction in revenue, around ₹1,730 crore, but would benefit both insurers and consumers.
- Full Exemption for Specific Groups: The Council is also considering exempting health insurance premiums for senior citizens or families with coverage up to ₹5 lakh from GST altogether. This could reduce the tax burden for vulnerable populations and is estimated to cost the exchequer ₹645 crore to ₹2,110 crore.
- Complete Exemption on Health Insurance: Some states and policymakers are pushing for a complete exemption of GST on all health insurance premiums. However, this option, while greatly beneficial to consumers, would result in a significant loss of revenue and is seen as less likely to be adopted.
The potential financial implications of these proposals range from ₹650 crore to ₹3,500 crore annually, depending on which option is selected.
What Will Change for Consumers?
If the GST rate is lowered to 5% or health insurance is exempted from GST altogether, consumers will see a notable reduction in their premium costs. For instance, a health insurance policy with an annual premium of ₹20,000 currently attracts ₹3,600 in GST at the 18% rate. Under a 5% GST regime, the tax would drop to just ₹1,000, a saving of ₹2,600 annually.
Lower premiums would also make it easier for families to afford higher coverage plans, providing them with better protection against escalating healthcare costs. More individuals and businesses would likely be encouraged to opt for group health insurance policies, which would further increase insurance penetration in India.
Industry Response
The insurance industry has largely welcomed the prospect of lower GST on health insurance, as it could stimulate market growth. Many in the industry, however, are concerned about the financial strain this could place on insurers if the reduction does not come with the ability to claim input tax credits. Without ITC, insurance companies would face higher operational costs, which could limit their ability to offer competitive pricing in the long term.
Nitin Gadkari, Union Minister of Road Transport and Highways, has been vocal in his support for lowering or exempting GST on insurance. He argues that taxing life and health insurance premiums is essentially a tax on the uncertainties of life, an opinion shared by many in both the public and private sectors.
What’s Next?
The GST Council has formed a Group of Ministers (GoM) to examine the various options for lowering the GST on health insurance premiums. The GoM, chaired by Bihar’s Deputy Chief Minister Samrat Choudhary, is tasked with presenting its findings by October 30, 2024. A final decision on the matter is expected during the Council’s November meeting.
FAQs
1. What is the current GST rate on health insurance?
The current GST rate on health insurance premiums is 18%.
2. How much could the GST on health insurance premiums be reduced?
The GST Council is considering reducing the rate to 5% or possibly exempting specific categories like senior citizens.
3. When will a final decision be made?
The GST Council is expected to decide by November 2024, based on the report from the Group of Ministers.
4. How will this impact my health insurance premium?
If the GST is reduced, your premium costs will decrease, making health insurance more affordable.
