On the withdrawal of 18% goods and services tax (GST) on life and health insurance premiums, Finance Minister Nirmala Sitharaman said on August 7, 2024, that tax had been there on medical insurance even before the introduction of GST. During her reply to the amendments of Finance Bill, 2024, Sitharaman said, “I want to raise two important points – tax has been there on medical insurance even before the introduction of GST. There was already a pre-GST tax on medical insurance before the GST was introduced. This is not a new issue, it was already there in all the states. Those protesting here… did they discuss regarding the removal of this tax in their states?”

A GST of 18% on life or health insurance policies pinches policyholders and discourages citizens from taking a new or higher insurance cover. The pain of policyholders gets amplified as insurance is a product where most beneficiaries will get the benefit only when they face an eventuality like death or hospitalisation. What this means is that in some cases, they would pay the premium and high tax but not get the benefit.

Around Rs 24,000 crore was collected from GST on health and life insurance in the last three financial years. Sitharaman said, “73-74% of the amount collected under the GST goes to the states.”

The finance minister highlighted that states had two-thirds share in GST Council and they were capable of taking a decision.

“Several suggestions have come up and I shall take up with the GST Council,” Sitharaman said.

While the insurance industry has been raising its voice against this, the issue of 18% goods and services tax (GST) on life and health insurance premiums has again come to the forefront now. The political parties of the INDIA bloc have recently protested the high tax outside the Parliament building and demanded that the central government withdraw this GST. A few days ago, Union Minister of Road Transport and Highways Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman urging her to roll back the 18% GST on such financial products. After Gadkari's letter, West Bengal Chief Minister Mamata Banerjee has also urged Sitharaman to remove GST on insurance premiums.

Source: The Economic Times