Great news for policyholders! The latest 54th GST Council meeting presided by Union Finance Minister Nirmala Sitharaman has agreed in principle to bring down the GST on health and life insurance premiums. So, here is the all-inclusive report of the major aspects you must familiarise yourself with regarding this significant development.
Highlights of the GST Council Meeting
1. Agreement on GST Reduction
Currently, the GST council has in principle accepted to reduce the GST rates imposed on health and life insurance premiums. The next council will make specific contingencies and the general operational strategy.
2. Current GST Rate
For instance, health and life insurance premium is subjected to a tax charge of 18%. The reduction planned is intended to help. Well-calculated reductions will relieve policyholders of the financial burden of going to hospitals.
3. The Fitment Committee
The heart of this system is where it approves or rejects the fitment of an employee to different tasks and responsibilities required for the direction, control, and coordination of an organization.
In turn, the Fitment Committee with the participation of Centre’s representatives and officials from some states performed a crucial task of preparing analytical data and an assessment of the effect of the reduction in GST rates. I contributed to this by undeaking the analysis for this paper to arriving at a consensus, even though the details are under discussion.
4. External Environment
In recent years one of the most important and frequently used instruments for state support for tax cuts is state aid.
Overwhelmingly, most states support the cuts in the GST on insurance premiums, and this is probably due to the consensus that insurance should be cheaper for the median consumer.
5. GST Collection Trends
Aggregate collections have been regularly rising, recently touching around Rs 1 in Monthly GST 75 lakh crore. This kind of healthy growth implies that the government could afford to introduce measures that are advantageous to the taxpayers, yet revenue would still be achieved.
6. Benefits for Policyholders
These reasons addition to the reasons stated above make it important for the government to consider cutting down the GST rates on insurance premiums since it will bring relief to millions of policyholders and possibly trigger growth in the insurance sector.
7. A brief understanding of GST in India:
Earlier also the insurance premiums were taxable under service tax laws but this was implemented after the implementation of GST in 2017. This system was later replaced by GST which brought about the integrated tax structure for a variety of sectors.
8. Revenue from Insurance Premiums
The GST revenues from health insurance premiums for the fiscal year 2023-24 was Rs 8,262 crore. The channelization arising from non-life insurance premiums stood at Rs 94 crore, whilst the health reinsurance was a premium of Rs 1,484.36 crore.
9. Legislative and Ministerial Concerns
The issues of the high GST rates on insurance premiums have been keenly debated in the parliament. In particular, Union Transport Minister Nitin Gadkari has called for a tax holiday while West Bengal Finance Minister Chandrima Bhattacharya has presented the same during a recent meeting.
10. Global Comparison
Globally, GST or VAT rates on insurance premiums vary: Globally, GST or VAT rates on insurance premiums vary:
- Asia: States like Japan as well as Korea have comparatively low taxes on insurance.
- Africa: Other nations have either exempted insurance from VAT or have used lower rates of this tax to be applied.
- North America: For instance, while insurance premiums a goods and services that are typically not liable to sales tax in most states in the US, Canada levies GST/HST on insurance, which is, however, levied at a much lower rate as compared to India.
- Europe: Several European countries have even lowered the VAT rates for insurance services.
- South America: Some countries apply reduced VAT rates on insurance as shown below.
- Australia: People who pay for insurance benefit from paying GST because it only applies to it but at a lower rate.
- Oceania: Thus, New Zealand applies GST for insurance at a reduced rate.
Conclusion
This has however been given as a reason for the cuts in the GST on health and life insurance premiums which is perceived as a positive move to try and popularize the product. Details about this reduction will remain to be decided in the following GST Council formations.
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