Ahead of the crucial 55th GST Council meeting in three weeks, finance minister Nirmala Sitharaman told Parliament on Monday that policyholders stand gain from a reduction in levies, which is being discussed by the ministerial panel.
“As the GST rates are applicable over and above the insurance premium, if the GST rate is reduced, it is expected to benefit the policyholder directly, especially in a competitive market with many insurers, as the cost of insurance will reduce to that extent,” she told Lok Sabha.
The ministerial panel led by Bihar deputy CM Samrat Chaudhary has discussed a proposal to do away with GST on term life insurance, while also removing the indirect tax on health insurance covers up to Rs 5 lakh and those purchased by senior citizens.
During 2023-24, the Centre and the states had raked in Rs 16,398 crore GST for health and life insurance policies -which face 18% tax – with the mop up split almost 50-50.
The 18% levy has caused a lot of heartburn among policyholders and it turned into a political issue, especially after transport minister Nitin Gadkari took up the matter with Sitharaman. Subsequently, other political parties such as Congress and TMC jumped in, prompting the union finance minister to ask politicians to take up the matter with the respective state FMs.
While the Centre and the states have maintained that the levy is in line with service tax, the GST Council decided to set up a ministerial panel led by Chaudhary.
Separate data shared with Parliament also showed that post-Covid, there had been a surge in health insurance covers of Rs 5 lakh purchased by senior citizens. From under 3 lakh seniors purchasing in 2019-20, this number has topped 9 lakh during the last financial year.
Sitharaman’s deputy Pankaj Chaudhary told Lok Sabha that insurance regulator IRDAI has framed regulations to ensure that the premium is “fair” and not “exorbitantly high”.
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