GST on health insurance premiums are subject to 18% tax which increases the overall cost of the policy for consumers.
The upcoming GST Council meeting is drawing attention, especially for its discussion on potentially exempting insurance premiums from the 18% GST.
This is a significant issue because the current tax makes insurance more expensive, which can discourage people from buying coverage that’s crucial for financial security. If this exemption goes through, it could lead to more affordable insurance, benefiting millions of people across India.
Why Insurance Matters?
Insurance is essential for financial security. Whether it’s health insurance, life insurance, or general insurance like home or motor coverage, it provides a safety net during unexpected events. Unfortunately, many people in India don’t have insurance because it’s too expensive, partly due to the 18% GST added to premiums.
For instance, a health insurance policy with a ₹20,000 premium costs ₹23,600 after GST. Removing this tax would lower costs, making insurance more accessible.
Potential Benefits of GST Exemption
If the GST Council decides to exempt insurance from GST, several positive outcomes could follow:
More Affordable Insurance
Without the 18% GST, insurance premiums would drop, making it easier for more people to afford coverage. This is particularly important for middle and lower-income families who might currently find insurance out of reach.
Increased Coverage
Lower prices could encourage more people to buy insurance, leading to wider coverage across the population. This could improve financial stability for individuals and families, reducing the risk of falling into poverty due to unexpected events like illness or accidents.
Boost to the Insurance Industry
As more people buy insurance, the industry could see a surge in demand. This could lead to growth in the sector, potentially creating more jobs and driving innovation as companies develop new products to meet the needs of a broader customer base.
Challenges of the GST Exemption
While the benefits are clear, there are challenges to consider:
Revenue Loss
The government collects significant revenue from the GST on insurance premiums. If this tax is removed, the government would need to find alternative revenue sources, which could involve raising taxes elsewhere or cutting public spending.
Implementation Complexity
Applying the exemption uniformly across all types of insurance could be challenging. The government would need to ensure that insurance companies pass on the savings to consumers and prevent any misuse of the policy.
Impact on Government Schemes
The government runs subsidized insurance schemes for economically weaker sections. The removal of GST on regular insurance could affect the funding of these schemes, so alternative funding methods would need to be considered.
Conclusion
The GST Council’s decision on whether to exempt insurance from the 18% GST could have a significant impact on the affordability and accessibility of insurance in India.
While the potential benefits are substantial, including making insurance more affordable for millions and boosting the industry, the government will need to carefully manage the challenges, especially in terms of revenue and implementation.
This decision could pave the way for a more financially secure future for many Indians.