No GST on Health Insurance and Life Insurance in India: From 18% to Zero Percent
In a landmark move that could bring significant relief to millions of Indians, the government is reportedly considering the removal of Goods and Services Tax (GST) on health insurance and life insurance premiums. Until now, insurance policies have been subject to 18% GST, making them costlier for common citizens.
The proposed shift from 18% to zero percent GST is not just a tax reform but also a social welfare step that reflects the growing importance of healthcare and financial security in today’s India.
The Current Scenario: Insurance Under GST
Since the introduction of GST in July 2017, most financial services, including insurance, have been brought under its ambit. Life insurance and health insurance, which are essential financial tools for individuals and families, were not spared. Policyholders currently pay an additional 18% GST on their premium amount.
For instance:
- If a person pays ₹20,000 as annual premium for health insurance, they end up paying ₹23,600 after including 18% GST.
- Similarly, for life insurance, a premium of ₹50,000 effectively becomes ₹59,000 due to GST.
- This additional burden has been a point of concern, especially for middle-class families and senior citizens, who often find insurance premiums already expensive.
Why Insurance is Essential
or Indian families, insurance is now a basic need, not just an optional financial product. With rising medical costs, lifestyle diseases, and unforeseen health emergencies, health insurance ensures financial protection during hospitalisation or critical illnesses. On the other hand, life insurance provides a safety net for families by offering financial support in case of the untimely demise of the breadwinner.
Despite the importance of insurance, penetration in India remains low compared to global standards. According to IRDAI data, insurance penetration in India is around 4.2%, much below the global average of 7%. High premium costs, along with taxes, have often discouraged people from buying adequate coverage.
The Move Towards Zero Percent GST
The government’s proposal to reduce GST on health and life insurance from 18% to zero percent is seen as a positive step towards increasing insurance adoption. By removing GST, insurance premiums will become more affordable and accessible to a larger section of the population.
Let us take an example:
- A 35-year-old purchasing a health policy of ₹10 lakh sum insured at ₹18,000 annual premium will now pay only ₹18,000 instead of ₹21,240 after GST.
- A term life insurance policy premium of ₹15,000 per year will remain ₹15,000, instead of ₹17,700 earlier.
This direct reduction in cost will encourage more people to invest in insurance, thereby increasing financial inclusion.
Benefits of Removing GST on Insurance
- Affordable Premiums for the Common Man: Removing GST will make policies cheaper. This will particularly benefit middle-income families and senior citizens who often hesitate to buy or renew policies due to high costs.
- Boost to Insurance Penetration: Lowering the cost barrier will encourage more first-time buyers to invest in insurance. It can help India move closer to global standards of insurance penetration.
- Encouragement for Preventive Healthcare: With affordable health insurance, more people will be inclined to undergo regular check-ups and avail preventive healthcare facilities, reducing the burden on public healthcare.
- Support for Senior Citizens: Senior citizens face the highest premium rates due to age-related risks. Waiving GST will significantly ease their financial burden.
- Strengthening the Economy: With wider adoption of insurance, individuals will be financially secure, reducing dependency on government healthcare schemes and social support during crises.
Industry and Expert Reactions
Insurance companies and financial experts have long been demanding a cut in GST rates for insurance policies. According to them, insurance is not a luxury service but an essential requirement, much like education and healthcare, which are already exempt from GST.
The removal of GST will not only increase demand but also align with the government’s vision of “Insurance for All” by 2047, as announced by the Insurance Regulatory and Development Authority of India (IRDAI).
Challenges in Implementation
While the decision is welcomed, it also comes with certain challenges for the government:
- Revenue Loss: GST collected from insurance is a source of revenue for the government. Waiving it completely will lead to some loss in tax collection.
- Balance with Fiscal Deficit: The government will need to ensure that the move does not impact fiscal health.
- Execution Framework: Insurance companies will need clarity on how to transition existing policies from GST to non-GST slabs.
The Larger Social Impact
Removing GST from health and life insurance is not merely a financial reform; it has far-reaching social implications. In a country where millions still remain uninsured, making policies affordable will drive awareness and adoption. This move could encourage families in rural and semi-urban areas to purchase insurance for the first time.
Moreover, health emergencies, as seen during the COVID-19 pandemic, highlighted the importance of medical coverage. By lowering insurance costs, the government ensures that people are better prepared for future health crises without falling into debt traps.
Conclusion
The proposed removal of GST on health insurance and life insurance premiums from 18% to zero percent is a much-needed and welcome reform. It will ease the financial burden on citizens, increase insurance penetration, and promote a culture of financial security in India.
While there may be challenges in implementation, the long-term benefits of such a move far outweigh the short-term revenue loss. This step will not only encourage more Indians to safeguard their health and family’s future but will also strengthen the nation’s financial and social fabric.
If implemented, this decision will mark a new chapter in India’s journey towards inclusive growth and social welfare, where health and financial security become accessible to every citizen, without the burden of additional taxes.
