GST cut on life, health insurance likely; relief for policyholders may be around the corner

The Goods and Services Tax (GST) Council is anticipated to unveil significant tax relief measures for insurance policyholders in its forthcoming meeting. Sources suggest that the council may either reduce or entirely eliminate the current 18% GST imposed on life and health insurance premiums. This initiative aims to make insurance more affordable for millions across India, addressing a long-standing demand supported by the Insurance Regulatory and Development Authority of India (IRDAI) and the Group of Ministers (GoM) on insurance. The GoM has recommended a full GST exemption on term life insurance and health policies for senior citizens, along with a waiver for health covers up to Rs 5 lakh. Moreover, the council's decision could lead to a broader range of affordable insurance products, catering to diverse needs and demographics.

Currently, the 18% GST on insurance premiums poses a significant obstacle, particularly given the rising healthcare costs and low insurance penetration rates in the country. With less than 40% of Indians covered by health insurance and term life insurance penetration below 4%, the tax cut could be crucial in enhancing coverage.Manish Kumar Goyal, Chairman and Managing Director of Finkeda, described the proposal as "a game-changer."

He remarked, "Cutting GST from 18% to 5–12% for term and health insurance will directly reduce premium costs. At a time when medical costs are soaring, this move can push first-time buyers towards securing adequate coverage. It’s a win-win for citizens and the insurance industry."

Shilpa Arora, COO and Co-founder of Insurance Samadhan, emphasised that "health and term insurance should not be treated as luxury goods. With premiums already rising 20–25% year-on-year, GST only worsens the financial burden. Removing or reducing it would make these essential protection tools accessible to more people." She further noted the urgency of the reform, highlighting that "medical inflation is hovering around 14%. GST relief will not only ease household budgets but also boost penetration, which remains alarmingly low." The potential for increased accessibility and affordability could significantly alter the insurance landscape in India.

Hanut Mehta, CEO and Co-founder of BimaPay Finsure, referred to the potential move as "a structural enabler" that could broaden healthcare access. He stated, "Reducing GST from 18% to 5% would make health insurance more accessible and encourage planned healthcare financing." The proposal is gaining momentum among industry leaders, indicating a strong possibility of implementation.

With growing support from both industry leaders and policymakers, the anticipation for the GST Council's decision is high. The proposed tax cuts could serve as a critical reform, progressing India towards the goal of "insurance for all." This reform is expected to not only alleviate financial burdens but also encourage more individuals to invest in their health and future security. The move could be transformative, offering a timely boost to the insurance sector and potentially increasing the overall economic stability of households across the nation.