India Calls for Health Insurance GST Cut as Insurance Penetration Remains Low

New Delhi, India - The Goods and Services Tax (GST) Council is set to explore lowering tax rates on certain insurance plans during its upcoming meeting in Rajasthan from December 21st to 22nd. According to reports, the council may completely remove the 18% tax on term insurance plans and consider eliminating the tax on health insurance for senior citizens and those buying coverage up to Rs 5 lakh.

The decision comes amid concerns about revenue loss if taxes are lowered. Several states, including Kerala and West Bengal, have expressed reservations about potential revenue losses, while most non-NDA governed states have opposed reducing the GST rate slabs from four to three.

However, a group of ministers has put together a proposal on reducing GST for health insurance, which is seen as the least controversial issue under review. The demand for junking indirect tax on health insurance gained attention after Transport Minister Nitin Gadkari demanded so in a letter to India's finance minister earlier this year.

The decision to lower GST rates on life and health insurance policies could provide fiscal relief to individuals and families having insurance coverage. However, there is concern that insurance companies may not pass the benefit of reduced GST on premiums to policyholders.

Insurance penetration in India remains low compared to other countries, with many Indians questioning why they should be taxed on healthcare—a service widely viewed as essential. The government's move aims to provide relief to citizens and encourage more people to purchase health insurance policies.