The Goods and Services Tax (GST) reforms expected around Diwali this year could likely lead to scrapping of the tax on insurance policies — or at least a calibrated reduction to 5 per cent — making insurance more affordable, improving financial security for millions and accelerating insurance penetration in India.
The long-anticipated reduction in GST on insurance is under active consideration by the government, although it is expected to result in annual revenue loss of approximately Rs 17,000 crore, said a source.
There is a worry, however, among insurance companies that they will lose the input tax credit (ITC) claim if the GST is completely abolished, which will push up operating costs for insurers.
Industry veterans have long criticised the 18 per cent on health, term and ULIP insurance premiums, particularly for health and term life insurance, as a deterrent to wider insurance adoption in India. If the government were to abolish this tax or bring it down to 5 per cent, the move could have far-reaching consequences — not only for customers and insurance companies, but also for public health and financial inclusion in India.
According to Narendra Bharindwal, president, Insurance Brokers Association of India (IBAI), the proposal to scrap GST on insurance would reduce the cost of premiums for policy-holders, thereby improving affordability and encouraging greater penetration of insurance across life, health and general insurance segments. “From a policy-holder’s perspective, this is a welcome move that aligns with the national vision of ‘insurance for all by 2047’,” Bharindwal said.
For policy-holders, GST reduction or exemption will make insurance more affordable, especially in retail health and micro-insurance, directly benefiting the masses. For example, if a family health insurance plan costs Rs 50,000 annually, the policy-holder ends up paying Rs 59,000 including GST. For term insurance, where affordability is a major selling point, GST abolition could make basic life coverage more accessible to lakhs of low- and middle-income families.
Insurers say that lower premiums directly translate into better affordability and greater coverage, particularly for first-time buyers who often hesitate due to the added tax burden.
Source: The Indian Express
