Clamour Grows For Removal Of GST On Life, Medical Insurance Premiums: How This Stands To Benefit You
Clamour Grows For Removal Of GST On Life, Medical Insurance Premiums: How This Stands To Benefit You
For instance, policyholders currently paying a Rs 30,000 annual premium for a health insurance policy would save up to Rs 5,400 if (18%) GST were removed.
The insurance sector has found new hope in political leaders who are championing the call for making health insurance products more affordable for customers. After Nitin Gadkari, West Bengal Chief Minister Mamata Banerjee has supported the demand for withdrawing GST on life and medical insurance premiums, stating that it adversely affects the people's ability to take care of their vital needs. In his letter to Union Finance Minister Nirmala Sitharaman on July 28, Gadkari said that levying GST on life insurance premiums amounts to levying tax on the uncertainties of life.
"Our demand to the Government of India is to roll back GST from life insurance and medical insurance premiums on grounds of people's health imperatives. This GST is bad because it adversely affects the people's ability to take care of their basic vital needs," the West Bengal CM said in a post on social media platform X.
What are the ministers advocating for?
Gadkari wrote a letter to Union Finance Minister Nirmala Sitharaman on July 28, in which he said that imposing GST on life insurance premiums equals levying tax on the ‘uncertainties of life.’ Currently, the government levies 18 per cent Goods and Services Tax (GST) on life and medical insurance premiums. The Minister followed suggestions from the Nagpur Divisional Life Insurance Corporation Employees Union regarding this GST and requested the finance minister to roll back the same.
This call has further been supported by opposition leaders - Congress MP Karti Chidambaram, Samajwadi Party MP Rajeev Kumar Rai, and RJD MP AD Singh, among others.
In addition to GST removal, Gadkari hai also raised points related to Differential Treatment to Savings by way of Life Insurance, the re-introduction of the IT deduction for health insurance premiums, and the consolidation of public and sector general insurance companies.
These demands are seeing mass calls as the GST council, which oversees tax-related changes, is set to reconvene this month. The last meeting took place on June 22.
As these leaders call for the removal of GST, it’s important to explore how this benefits policyholders and impacts the broader insurance landscape.
In the last few years, almost all insurance companies have hiked health insurance premiums. Says Gunjan Prabhakaran, Partner & Leader, Indirect Tax, BDO India, “In the case of medical insurance, all the insurance companies have significantly increased or are in the process of increasing premiums, post-Covid.”
When asked if she thinks the imposition of GST on life and medical insurance premiums affected policyholder behaviour and the overall uptake of insurance products, Prabhakaran said that the already high amount of premiums, when coupled with 18 per cent GST on premiums, have significantly increased the overall amount of outgo on this account and in many cases, has made medical insurance quite unaffordable for lower classes or senior citizens.
“Life insurance becomes more accessible if the rate is lower, and policyholders can be encouraged to obtain larger insurance covers,” Prabhakaran comments.
How does GST removal on medical insurance stand to benefit middle-class families and senior citizens?
If the GST burden is to be reduced on the insurance, it would give relief to middle-class families and senior citizens, “to the extent the rate reduction or exemption is passed on by reducing the effective premium cost and would encourage more persons to be covered under the insurance,” Prabhakaran opines.
Says Rakesh Jain, CEO, Reliance General Insurance, “By positioning insurance under the 18 per cent GST slab, it is often perceived as a 'good-to-have' product, degrading its role as a financial institution.”
Middle-class families and senior citizens often rely on insurance to help manage unexpected health costs and secure their financial future. “Removal of GST will increase considerations and insurance affordability for more people, making it easier for everyone to get covered and feel secure about their future,” Jain comments.
For senior citizens, who already face higher premiums due to age-related health risks, the elimination of GST could mean the difference between affording adequate coverage and opting out. The lower cost barrier would enable more seniors to secure life and medical insurance, providing peace of mind and financial protection in their later years.
Will this policy shift bring in more attractive health products?
High premiums put a strain on policyholder’s budgets, with many individuals either reducing their coverage levels or foregoing insurance altogether. The increased cost has particularly impacted middle-class families and senior citizens, who are more sensitive to price changes.
The removal of GST will aid the penetration of new insurance policies and upgrade existing policyholders. “For a population that today finds insurance non-negotiable, it has restricted or underinsured due to its present liability,” Jain adds.
If GST is removed, a straight 18 per cent less in amount will keep people from choosing higher sum-insured or better policy coverages in the same amount. For instance, policyholders currently paying a Rs 30,000 annual premium for a health insurance policy would save Rs 5,400 if (18%) GST were removed.
“Moreover, lower costs inspire insurers to create new and innovative products better tailored to the diverse needs of customers, making the industry more dynamic and responsive,” Jain states.
Could there be any challenges for insurers if GST is removed?
“We understand that the removal of GST will come with its own set of challenges. There will be operational adjustments, like updating systems and processes that currently include GST considerations. Additionally, this change could affect tax credits and alter market dynamics,” Jain shared.
However, as these changes could benefit policyholders and support economic goals, insurers feel are ready to navigate these logistical hurdles carefully to ensure a smooth transition.
While various insurance industry segments have been calling out for a reduction in GST on life and medical insurance premiums, Gadkari and other opposition leaders' call for a complete removal of GST on both the life and medical insurance sector could have far-reaching positive effects. It would not only alleviate the financial burden on policyholders but also stimulate market growth and innovation.
Source:- Business Outlook India