Centre Proposes GST Exemption for Insurance Premiums

The Central government has proposed exempting life and health insurance premiums from the current 18% Goods and Services Tax (GST), announced Bihar Deputy Chief Minister Samrat Choudhary, convenor of the Group of Ministers (GoM) on life and health insurance, on Wednesday. This move, part of broader next-generation GST reforms, seeks to make insurance more affordable and boost penetration, particularly for individual and family policies.

Speaking to reporters after a GoM meeting, Choudhary confirmed that the panel, comprising ministers from 13 states including Uttar Pradesh, Rajasthan, West Bengal, Karnataka, and others, will submit its report to the GST Council by October 2025.

The report will reflect consensus on lowering rates, though some state finance ministers raised concerns, which will also be included. “The Centre’s proposal is clear that the insurance sector’s individual and family policies should be exempt from GST. All members have approved lowering rates, but the final call rests with the Council,” he said.

The proposal aligns with reforms to simplify GST into two slabs—5% for merit goods and 18% for standard goods. In 2023-24, GST collections from health insurance premiums totaled Rs 8,262.94 crore, with an additional Rs 1,484.36 crore from health reinsurance premiums, highlighting the significant fiscal impact of the proposed exemption.

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The GoM, formed in September 2024, aims to address long-standing industry demands for reduced GST to enhance affordability, especially as insurance penetration in India remains low at 3.7% for life and 1% for non-life insurance. However, some X posts express skepticism, noting potential revenue losses of Rs 2,600 crore annually and concerns from insurers about losing input tax credits, which could raise premiums if exemptions are implemented without adjustments.

The GST Council’s upcoming decision, expected in November, will determine whether this proposal advances, potentially reshaping India’s insurance landscape.

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