In a significant push to make health insurance more accessible to a large section of the Indian population, most of whom happen to give insurance a wide berth, Union Minister of Road Transport and Highways, Nitin Gadkari has asked for the removal of the Goods and Services Tax (GST) on life and medical insurance premiums.

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The request has also been supported by other prominent political leaders, namely, West Bengal Chief Minister Mamata Banerjee, Congress Member of Parliament (MP) Karti Chidambaram, Samajwadi Party MP Rajeev Kumar Rai, and RJD MP AD Singh, among others.

Their advocacy focuses on the undue burden this tax places on policyholders, particularly senior citizens. This demographic, which already struggles with limited income sources and increasing healthcare costs, stands to benefit greatly from such a policy shift.

The calls for the removal of GST on life and medical insurance premium comes ahead of the GST council meeting, which is set to reconvene this month. The last meeting took place on June 22, 2024.

Financial Strain Of GST On Insurance Premiums

At present, life and medical insurance premiums are subject to an 18 per cent GST, which substantially adds to the cost of these essential services. For senior citizens, who often face higher premiums due to age-related risks and pre-existing health conditions, this tax can be a significant financial burden.

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With limited income sources, namely pensions or savings, many seniors find it challenging to afford comprehensive insurance coverage. The additional cost imposed by GST can also be a deterrent, leading to underinsurance, i.e., insurance with limited coverage or, in some cases, no insurance at all.

Affordability And Enhanced Access To Coverage

In a letter to his colleague, Union Minister of Finance Nirmala Sitharaman, on July 28, 2024, Gadkari wrote that levying GST on life insurance premiums was tantamount to levying tax on the ‘uncertainties of life’.

The proposed removal of GST would directly reduce the cost of insurance premiums, making them more affordable for senior citizens.

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For instance, a senior citizen, who is paying an annual premium of Rs 50,000 for a health insurance policy would save Rs 9,000 if the 18 per cent GST were to be removed.

Such a reduction could be pivotal, allowing more seniors to either enhance their existing coverage or opt for insurance plans that were previously out of reach.

This financial relief would be particularly crucial for those with chronic health conditions, who often require comprehensive health plans with higher premiums. Lower costs would enable these individuals to secure the necessary coverage without compromising on their limited resources.

In addition, increased affordability might encourage more seniors to purchase health and life insurance, thereby improving their financial preparedness for potential medical expenses and other life contingencies.

The insurance industry has for long requested a reduction in GST rate on health insurance premiums. However, the call to eliminate GST on life and medical insurance premiums, furthered by political leaders like Mamata Banerjee and Nitin Gadkari, represents a potential turning point for senior citizens’ healthcare accessibility in India.