Tax relief by GST Council on premium for life

The GST Council is not likely to provide a tax relief to those seeking life or medical insurance cover, despite the low penetration of life and health insurance in the country. The Fitment Committee, a panel of central and state government officials working for the GST Council, has rejected a proposal to lower the tax rate on premium paid on a slew of insurance policies from life to third party. This comes as the GST Council’s 47th meeting is scheduled to take place in Chandigarh on Tuesday and Wednesday.

India Today TV has learnt that the Fitment Committee, in the agenda documents for the GST Council that requests to ‘Remove GST on Life & Health Life Insurance’, has recommended “no change” from the current 18 per cent GST imposed.

Currently there are three types of GST for insurance – on insurance risk premium, on late fee and delayed loan interest paid, and on annuity policies that don’t contain any risk premium. No GST is levied on investments in banks, post office savings schemes etc.

The request for the removal of GST on health insurance is backed by the argument that 18 per cent GST on policies is hampering its penetration. The additional amount is huge, and is discouraging buyers from buying health insurance. However, the committee, backing the continuation of the levy has stated that “this is a new exemption request and exemption/lowering of GST rate will lead to cascading of input taxes and result in distortion of tax structure”.

The baseline rate for GST for life insurance is 18 per cent, but for the first premium it is 4.5 per cent, and for second and onward, it is 2.25 per cent. For single premium policies, it is only 1.8 per cent. However, in the case of health insurance premiums, it is 18 per cent.

The reduction and removal of GST has been in demand for some time now due to the low penetration of health cover in India. Large segments of the population end up depending on the government healthcare system. Government-operated insurance schemes such as Rashtriya Swasthya Bima Yojana (RSBY), Universal Health Insurance Scheme, Jan Argoya Bima Policy and Niramaya Health Insurance Scheme, catering to almost 34.2 crore people in the economically-weak and differently-abled categories, are already exempted from GST.

The group business insurance policies excluding those provided by state governments cover 11.8 crore people, while only 5.3 crore Indians have individual health insurance policies, as per Statista, a provider of market and consumer data.

Another request was to exempt personal lines of insurance such as medi-claim, householder’s policy, personal accident policy from GST, which has also been turned down by the committee. The request said that most of the insured are paying tax on their income and GST is an added expenditure. But the committee noted that this is a request for new exemption and it would be against the fundamental tenets of GST, and ITC on inputs would stick as a cost to insurers.

There was also a proposal to provide a blanket exemption to general micro insurance products which include health insurance contract, any contract covering belongings such as hut, livestock, tools or instruments and any personal accident contract that can be on an individual or group basis. The Committee, however, has laid down that since some of these general micro insurance products are already exempted, there is not much merit in granting blanket exemption.

A proposal to exempt third party insurance for commercial vehicles has also been set aside. The request said that mandatory third-party premium on heavy goods vehicles has been abnormally increased over past few years and is high, though the category wise share of accidents from trucks as per the government’s data is far less. The committee felt that the rate has already been lowered to 12 from 18 per cent. Further reduction will result in revenue and loss and distortion of the ITC chain. Business Today