Health cover for senior citizens, term life insurance may get GST waiver

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Last Updated22/10/2024

The Goods and Services Tax on premiums paid by senior citizens for health insurance and premiums paid by all for term life insurance may be exempted as most members of a ministerial panel set up specifically to study this agreed in favour of extending such relief on Saturday.

The Goods and Services Tax (GST) Council is considering exemptions on premiums for health insurance for senior citizens and term life insurance premiums for all. This comes as part of efforts by a Group of Ministers (GoM) tasked with rate rationalisation and addressing insurance premium tax rates.

GST on health insurance premiums paid by senior citizens may be completely exempted, regardless of the coverage amount.

For non-senior citizens, health insurance premiums for coverage up to Rs 5 lakh are expected to be exempted from GST. However, the current 18% GST rate would continue for health insurance covers above Rs 5 lakh.

Term life insurance premiums for all individuals, including family-inclusive plans, are expected to be exempted from GST.

The exemption proposals are estimated to result in a revenue loss of Rs 2,200 crore for senior citizens' health insurance and Rs 200 crore for term life insurance. However, the GST Council aims to offset this loss by increasing GST rates on luxury items, including:

Wristwatches above Rs 25,000 These high-end items may be moved to the 28% GST slab, contributing an additional Rs 22,000 crore in revenue.
Rate Rationalisation: Items Proposed for GST Reduction
In addition to insurance-related changes, the GoM has proposed a reduction in GST rates for some commonly used items:
Packaged Water (above 20 litres): Reduction from 18% to 5%
Bicycles (costing less than Rs 10,000): Reduction from 12% to 5%
Exercise Notebooks: Reduction from 12% to 5%
These changes are expected to provide relief to consumers while maintaining the overall revenue balance through higher taxes on premium goods.

Several Opposition leaders and industry voices have called for the removal of GST on insurance premiums. Leaders like Rahul Gandhi and Mamata Banerjee have urged the central government to address the high tax burden on life and health insurance. Even Union Minister Nitin Gadkari has highlighted the issue, stating that taxing insurance premiums is akin to taxing the "uncertainties of life."
In response, Union Finance Minister Nirmala Sitharaman acknowledged the concerns and has pointed out that insurance premiums were subject to taxes even before GST, with revenue sharing between the Centre and states.