The upcoming meeting of the Goods and Services Tax (GST) Council on September 9, 2024, has raised hope that the government may favourably decide on the long-standing demand of the stakeholders for a reduction or removal of the GST tax on health and term insurance policies.

The demand gained momentum after Union Minister of Road Transport and Highways, Nitin Gadkari, requested the government to remove the 18 per cent GST levied on life and medical insurance premiums in July, shortly after the budget. It is expected that removing GST will make insurance affordable and bring more people under coverage.

Also Read: How To Avoid Mis-Selling In Annuity Plans: 5 Things To Keep In Mind

In its Monday meeting, the council’s fitment panel, comprising revenue officers of the central and state governments, is expected to present a detailed report to the council members on the tax proposals after they failed to reach a consensus earlier.

The meeting is expected to deliberate on the potential impact of a full GST exemption on health and pure-term life insurance and whether to reduce the current rate from 18 to 5 per cent. It may also explore options like exemption on insurance coverage of up to Rs 5 lakh or exemption only to senior citizens.

However, the proposal would face resistance from the state governments due to the potential loss of revenue. Currently, states receive 50 per cent of the GST collected on insurance premiums. The Times of India, citing Union Minister of State for Finance Pankaj Chaudhary, reported that central and state governments have collectively earned over Rs 21,000 crore in GST from health insurance over the three fiscal years leading up to March 2024. The revenue from the last fiscal year alone amounted to around Rs 8,200 crore, of which states received about Rs 4,100 crore.

The lack of consensus among the states over the issue is a significant hurdle. While the opposition parties have been vocal about the need for tax relief, it is to be seen what the GST Council finally decides, whether it takes a middle ground or fully scraps GST on insurance.

Also Read: Removal of GST On Life, Medical Insurance: How This Will Benefits Senior Citizens

With the medical inflation rate in two digits, the reduction in GST rates will greatly relieve citizens, particularly seniors who rely heavily on savings, and many senior citizens also do not have pensions or adequate pensions. Lowering the tax burden on health insurance premiums would provide much-needed relief to this vulnerable demographic.