Full exemption for all health insurance premiums and reinsurance or a reduction in the GST rate from 18% to 5% on health insurance services is likely.
The Goods and Services Tax (GST) Council in its meeting on Monday, September 9, 2024, is likely to decide on four options regarding tax treatment of health insurance, with the cost to the exchequer potentially ranging from nearly Rs 650 crore (Rs 6.5 billion) to Rs 3,500 crore (Rs 35 billion).
These four options have emerged from a detailed analysis by the Council's fitment panel, which includes revenue officials from both central and state governments, and follow a request from the Department of Financial Services (DFS) to reduce taxes on health insurance products to make them more affordable and accessible.
The fitment panel is expected to submit before the Council a detailed report outlining these options, which include a full exemption for all health insurance premiums and reinsurance, or a reduction in the GST rate from 18 per cent to 5 per cent on health insurance services, according to officials in the know.
Other possibilities include exempting premiums paid by senior citizens and premiums with coverage up to Rs 5 lakh, or alternatively, only exempting premiums paid by senior citizens from GST ambit.
Each of these four proposals carries different financial implications: Rs 3,495 crore (Rs 34.95 billion), Rs 1,730 crore (Rs 17.30 billion), Rs 2,110 crore (Rs 21.10 billion), and Rs 645 crore (Rs 6.45 billion), respectively.
In a separate move, the panel also considered the possibility of exempting life insurance premiums from GST.
It recommended limiting the exemption to pure-term individual life policies and reinsurers, a suggestion that carries a likely revenue impact of Rs 210 crore (Rs 2.10 billion).
However, it stressed that any reduction in life insurance taxes should be contingent upon insurance companies passing on the benefits to policyholders.
The panel's recommendations were based on data from the DFS, which showed that total health insurance premiums in India during FY23 were Rs 90,032 crore (Rs 900.32 billion), with the individual health insurance segment accounting for Rs 35,300 crore (Rs 353 billion), or 39 per cent of the total.
At the current 18 per cent GST rate, the government collected Rs 6,354 crore (Rs 65.34 billion) on individual health insurance premiums.
The DFS argues that reducing GST on health insurance would help address India's low insurance penetration by lowering premiums, encouraging more people to purchase insurance, and opting for higher coverage.
It also believes that increasing the number of insured individuals would offset the short-term loss in GST revenue, supporting the central government's efforts towards providing a minimum of social coverage net for every citizen and aligning with the "'nsurance for All' vision for 2047.
In her reply to the amendments to the Finance Bill, 2024, on August 7, Union Finance Minister Nirmala Sitharaman stated: '...Tax has been there on medical insurance even before the introduction of GST.
'There was already a pre-GST tax on medical insurance before GST was introduced.
'This is not a new issue; it was already there in all the states.'
Her statement was in response to the Rajya Sabha MPs demanding removal of the GST levied on medical insurance.
Also, Union Minister of Road Transport and Highways Nitin Gadkari had written to Sitharaman to remove the 18 per cent GST on life and medical insurance premiums. He argued that this tax burdened the uncertainties of life and hindered the sector's development.
Feature Presentation: Ashish Narsale/Rediff.com
