GST ON HEALTH INSURANCE - ECONOMY

GST ON HEALTH INSURANCE - ECONOMY

News: Insurance premiums on health and life policies have increased this year, and the 18% Goods and Services Tax (GST) has made insurance less affordable for many people.

    • Medical inflation, estimated at 14% towards the end of last year, along with increased premiums, has made buying medical insurance difficult for many.

 

What’s in the news?

What is the GST on Health and Life Insurance Premiums?

  • GST replaced all indirect taxes like service tax and cess from July 1, 2017.
  • Currently, GST on health and life insurance policies is fixed at 18%.
  • According to the formula, the Centre collects 9% GST with a matching collection by states.
    • Before GST, life insurance premiums were subject to 15% service taxes, including Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess.

 

Rational behind the Tax

  • GST Council Recommendations:
    • GST rates and exemptions on all services, including insurance, are prescribed on the recommendations of the GST Council, which includes the Union Finance Minister and ministers nominated by state governments.
    • Insurance is considered a service, and policyholders pay tax on their premiums, generating significant revenue for the government.
  • Tax Deductions:
    • Insurance policies allow certain deductions while computing income tax under Sections 80C and 80D of the Income Tax Act, 1961. Customers can avail deductions on the premium, including the GST applicable.

 

About Rising Insurance Costs and GST Concerns:

  • Premium Hikes and GST Impact:
    • Insurance companies have increased premiums by up to 50-60% this year.
    • The 18% GST on health and life insurance premiums is contributing to the higher costs.
    • Medical inflation, at 14%, is also making insurance less affordable.
  • Opposition and Government Response:
    • Opposition leaders, including Rahul Gandhi and Mamata Banerjee, are demanding the removal of the 18% GST on insurance.
    • Nitin Gadkari has criticised the tax for restricting industry growth and increasing premiums.
    • The government has received calls for reducing or exempting GST from insurance premiums.
  • Market and Policy Considerations:
    • GST replaced previous service taxes, increasing insurance costs from 15% to 18%.
    • Insurance penetration in India is low, and high GST rates are seen as a deterrent.
    • Recommendations suggest lowering GST to make insurance more affordable and align with the “Insurance for All by 2047” goal.

 

Arguments for Withdrawing the GST on Premiums

  • High Premium Increases:
    • Significant increases in premiums on health insurance policies this year have been observed, with some public sector insurers hiking premiums by 50%.
    • The renewal rate of policies is declining due to frequent premium hikes and medical inflation.
  • Comparative GST Rates:
    • The Confederation of General Insurance Agents’ Associations of India points out that GST on insurance in India is the highest in the world.
    • The high GST rate is seen as a deterrent to insurance penetration, which conflicts with the goal of “Insurance for All by 2047”.
  • Recommendations for Rationalisation:
    • The Standing Committee on Finance recommended rationalising the GST rate on insurance products to make them more affordable.
    • Suggestions include reducing GST rates for health insurance, especially for senior citizens, micro-insurance policies, and term policies.

 

Insurance Penetration in India:

  • According to a Swiss Re Sigma report, insurance penetration in India’s life insurance sector reduced from 3.2% in 2021-22 to 3% in 2022-23, while the non-life insurance sector remained stagnant at 1%.

Overall insurance penetration reduced to 4% in 2022-23 from 4.2% in 2021-22

 

Major Initiatives by IRDAI

Bima Sugam:

  • An online insurance marketplace for buying, selling, and servicing insurance policies as well as settling claims.
  • Part of IRDAI’s Bima Trinity – Bima Vistaar, Bima Vahak, and Bima Sugam.

 

  Saral Jeevan Bima:

  • Provides basic protection to self-employed individuals or people in low-income groups.

 

Integrated Grievance Management System:

  • To create a central repository of grievances across the country and provides various analyses of data indicative of areas of concern to the insurance policyholder.

 

Pan India Survey:

  • Conducted through the National Council of Applied Economic Research (NCAER) to improve its strategy of creating insurance awareness.


Mandating Board Approved Policy for Insurers:

  • Insurers are mandated to have a Board approved Insurance Awareness Policy with an action plan for organizing various activities promoting consumer awareness on various aspects of insurance. 

 Source: https://indianexpress.com/article/explained/explained-economics/goods-and-services-tax-gst-on-health-insurance-gst-withdrawal-life-insurance-rahul-mamata-9499214/#:~:text=Currently%2C%20GST%20on%20health%20and,an%20increase%20in%20premium%20amounts.