The GST council's fitment committee on Monday turned down a proposal to reduce the 18 per cent tax levied on life and health insurance.Despite the low penetration of life and health insurance in the country and the heightened medical concerns driven by the pandemic, the GST council is not likely to provide tax relief to those seeking life or medical insurance cover.
India Today found out that the fitment committee, a panel of central and state government officials working for the GST Council, rejected a proposal to lower the tax rate on premiums paid on a slew of insurance policies from life to health to third parties.
The agenda documents accessed from the GST council show that the fitment committee recommended “no change” to the request to remove the GST on life and health insurance. There is an 18% GST imposed on life and health insurance currently.
The GST at present is of three types. The first is the GST on Insurance Risk premium, the second is GST is collected on late fee and delayed loan interest paid due to a delay in payment of premium and interest on time. Third is the GST imposed on annuity policies which don’t contain any risk premium. GST is not collected on investment in banks, post office savings schemes, etc.The request for removal of GST on health insurance is backed by the argument that the 18% GST on policies is hampering penetration, which is the need of the day. The request states, “If one wants to invest Rs 1 lakh per year in health insurance his premium would be Rs 1,18,000 every year and this huge amount of GST is discouraging the prospect of getting it.”However, the fitment committee backed the continuation of the tax levied on health insurance by saying that “this is a new exemption request and exemption or lowering the GST rate will lead to cascading of input taxes and result in distortion of the tax structure.”
The GST council forwarded the request for reduction or removal of taxes on health insurance for examination to the fitment committee. Usually the fitment committee examines proposals for changes in rates for goods and services and accordingly recommends a yes, no or defer. The recommendations are taken up by the GST Council for approval and these are implemented through legislative changes and subordinate legislation by the Centre and states or union territories.
The Baseline rate for GST for life insurance is 18 per cent, but for the first premium it is 4.5 per cent and for second and onward premiums, it is 2.25 per cent. For single premium policies, it is only 1.8 per cent.However, in the case of health insurance premiums, the 18% GST slab is applicable.
HEALTH INSURANCE IN INDIA
The demand for reduction and removal of GST has been around for some time now due to the low penetration of health cover in India, where a large segment of the population ends up depending on the government’s health care system.
According to Statista a leading provider of market and consumer data nearly 51.4 crore people across India were covered under health insurance schemes in the fiscal year of 2021. Of these, the highest number of people were insured under government-sponsored health insurance schemes, while individual insurance plans had the lowest number of people. Overall, the penetration of health insurance in India stood at just around 35 percent in the financial year 2018.
Government-operated insurance schemes such as the Rashtriya Swasthya Bima Yojana (RSBY), Universal Health Insurance Scheme, Jan Arogya Bima Policy and Niramaya Health Insurance Scheme which cater to almost 34.2 crore people in the economically weak and differently abled category, are already exempted from GST.
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