GST Council Establishes Panel to Evaluate Insurance Tax Rates; Report Due by October 30

GST Council Appoints Group of Ministers to Review Tax Rates on Insurance Premiums; Comprehensive Report Expected by October 30

In a significant development, the GST Council has constituted a 13-member Group of Ministers (GoM) tasked with reviewing and recommending changes to the Goods and Services Tax (GST) rates on health and life insurance premiums. The panel is required to submit its detailed report by October 30, 2024.

The GoM will be chaired by Bihar Deputy Chief Minister Samrat Choudhary and includes representatives from a diverse array of states: Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu, and Telangana. This group is charged with examining the current GST framework, which imposes an 18% tax on insurance premiums, and suggesting potential revisions.

The formation of the GoM follows the 54th GST Council meeting held on September 9, 2024, where it was decided that a comprehensive review was needed. The review will cover a wide range of insurance products, including life insurance—both term insurance and investment-linked policies—and various health insurance plans, such as individual, group, and family floater policies. The panel will also look into tax implications for different categories of insured individuals, including senior citizens, middle-class families, and people with mental health issues.

The decision to set up this GoM reflects ongoing debates about the impact of GST on insurance premiums. Opposition-ruled states, such as West Bengal, have advocated for a complete exemption from GST on health and life insurance premiums, arguing that the tax burden exacerbates financial stress on consumers. Conversely, other states have suggested reducing the GST rate to 5% to alleviate the financial burden while still contributing to state revenues.

In July, Transport Minister Nitin Gadkari raised concerns about the tax on insurance premiums, stating in a letter to Finance Minister Nirmala Sitharaman that taxing life insurance premiums effectively amounts to taxing life's uncertainties. This sentiment has resonated with many stakeholders who feel that such a tax could disincentivize insurance coverage.

For the fiscal year 2023-24, GST collections on health insurance premiums totaled Rs 8,262.94 crore, while Rs 1,484.36 crore was collected from health reinsurance premiums. This substantial revenue underscores the importance of the tax to state finances, as 75% of the GST collected is allocated to state governments. Finance Minister Sitharaman has emphasized that any proposals for tax changes should be brought forth by state finance ministers to the GST Council for consideration.

The GoM’s findings and recommendations are anticipated to play a crucial role in shaping the future tax structure for insurance products. A final decision on any changes to the GST rates will be made by the GST Council in their next meeting, scheduled for November 2024, based on the GoM's report and recommendations. The outcome of this review will be closely watched by both policymakers and the insurance industry, given its potential to impact insurance affordability and accessibility across the country.