By Anshul
August 6, 2024, 3:21:41 PM IST (Updated)
3 Min Read
The Goods and Services Tax (GST) in India significantly impacts insurance premiums, affecting how much policyholders pay for essential coverage. Recently, there has been an increasing demand for the government to reconsider the GST rates on insurance products.
Political leaders, including the leader of Opposition Rahul Gandhi, and industry bodies are advocating for a rollback or reduction to ease the financial burden on individuals and families.
Understanding GST on insurance premiums
Insurance premiums in India are subject to GST because insurance is classified as a service.
The GST rates vary depending on the type of insurance policy:
Term Insurance Plans: Subject to an 18% GST on the total premium amount.
Unit Linked Insurance Plans (ULIPs): Attract an 18% GST on various charges, including fund management fees.
Endowment Plans: Face a GST rate of 4.5% on the premium in the first year, reducing to 2.25% from the second year onwards.
Single Premium Annuity Policies: Incurs a GST rate of 1.8% on the lump sum payment made.
The current demand for GST rollback
There is growing pressure on the government to reevaluate the GST rates on insurance premiums.
Recently, leaders from the INDIA alliance protested outside the Makar Dwar in Parliament, urging the Central government to roll back GST on health and life insurance.
Among them was Congress leader Rahul Gandhi, who supported the call for relief for the middle class, arguing that the GST makes essential insurance services less affordable.
Congress MP Jebi Mather also expressed her views, stating that no GST should apply to health and life insurance.
Additionally, Union Minister of Road Transport and Highways Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman, asking her to reconsider the 18% GST on life and medical insurance premiums.
Gadkari's appeal followed a memorandum from the Nagpur Divisional Life Insurance Corporation Employees Union, highlighting the issue's urgency.
In June, the Confederation of General Insurance Agents' Associations of India also appealed to the government to reduce GST on individual health policies from 18% to 5%.
The association argued that lowering GST would encourage more people to purchase health insurance as a social security measure, especially given the significant rise in premiums over the past five years.
Impact of GST on personal finances
GST on insurance premiums directly impacts personal finances, especially for the middle class.
High GST rates increase the cost of insurance policies, making them less accessible to those who need them most.
As insurance premiums rise, families may find it challenging to maintain adequate coverage, which can lead to financial vulnerability in unforeseen medical emergencies or loss of income scenarios.
Potential benefits of a GST rollback
Experts say reducing or eliminating GST on insurance premiums could provide several benefits.
Lowering GST rates would reduce the cost of insurance policies.
With reduced costs, more people may be encouraged to invest in health and life insurance.
A GST reduction could further boost the insurance sector's growth.
