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As the government considers an overhaul of GST rates across industries, the insurance sector has emerged as a key area under review. According to CNBC-TV18, the government is planning to reduce GST on life and health insurance from the existing 18 per cent to either 5 per cent or even zero. At first glance, such a move appears beneficial for policyholders, suggesting lower premiums. However, industry leaders caution that this may not translate into cheaper insurance.

Industry Warns Lower GST Could Raise Insurance Premiums

Veterans in the insurance sector argue that lowering GST rates could backfire. Under current tax rulesGST levied at 5 per cent or zero does not qualify for Input Tax Credit (ITC). Insurance companies currently benefit from ITC on the 18 per cent GST. If rates are cut, insurers would lose this credit facility, thereby reducing their profit margins. As a result, companies may be compelled to adjust premiums upward, offsetting the intended relief for consumers.

Stakeholders believe this situation could ultimately burden policyholders instead of benefiting them. Given these concerns, insurance industry leaders are preparing to reach out to the Finance Ministry to advise against lowering GST rates on health and life insurance policies.

GoM and IRDAI Recommendations Await Final Decision on Insurance GST

The debate around GST on insurance is not new. In July, the Group of Ministers (GoM) on insurance recommended complete removal of GST on term life policies and health insurance for senior citizens, aimed at improving affordability. Subsequently, the Insurance Regulatory and Development Authority of India (IRDAI) provided its recommendations to the council in December 2024. A final decision is still pending, but the government will need to balance affordability for consumers with sustainability for insurers before implementing GST changes.

Summary:

The government is considering reducing GST on life and health insurance from 18% to 5% or zero. While it appears consumer-friendly, industry leaders warn it may raise premiums as insurers lose Input Tax Credit benefits. GoM and IRDAI recommendations await a final decision balancing affordability and sustainability.