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GST Council likely to take up insurance tax relief at next meeting, GoM may stick to full exemption proposal

Submitted by admin on June 10th, 2025

According to people close to the matter, GST Council is set to consider granting tax relief for incoming premiums of life and health insurance at its next meeting, possibly before the monsoon session of Parliament with support from the Group of Ministers for a complete GST exemption on term life plans and senior health insurance.

Before the council’s final meeting, IRDAI’s comments have already been submitted, as these are considered to be very important before reaching the decision.

PolicyInserv was informed by government sources that the insurance GoM is likely to re-present its previous plan, which suggests removing GST from term life insurance and health insurance premiums for people aged 60 years and more. GoM has also proposed that health insurance up to Rs 5 lakh should be exempt from GST to make insurance easy for regular people.

At present, the GST rate on life and health insurance policies is 18 percent, and the government is thinking about reducing it, as stakeholders in the industry wish for a cut in order to help people buy more of these policies. In figures released by the government, the suggested exclusions will result in a loss of close to Rs 2,600 crore per year, of which Rs 200 crore is from term life insurance and the rest from health cover. According to sources, the full reach the plan offers is expected to make up for its expenses.

The insurance industry too had raised concerns over exemptions, highlighting the loss of input tax credit (ITC). Under the current system, insurers can offset taxes paid on inputs like IT infrastructure, marketing and administrative expenses against the GST collected from policyholders. Exemption would block this credit mechanism, forcing insurers to absorb the costs, potentially leading to higher premiums.

“…reducing the rate to 12 percent will not give enough benefit to the consumer, and lowering it to 5 percent would cause revenue loss through input tax credit,” one government source explained, adding, “the best option is to exempt.”

A major reason people are calling for GST relief on insurance is due to the low number of Indians with insurance. Recent Economic Survey for India shows that its insurance coverage stands at 3.7 percent of GDP in FY24, far below the worldwide average of nearly 7 percent. Giving people full exemption from paying medical-related taxes is expected to help lower medical costs and protect more people, mainly those who are older.

From now on, the GST Council will look at the GoM’s proposal along with the industry’s responses and decide based on the fiscal limits at their upcoming meeting.

We need PMO to check and deal with the issues of health insurance as slow growth keeps occurring and GST remains continuously high.

While a large part of India’s non-life insurance deals with health plans, the industry is unsure about what the future holds because of increasing expenses and a decrease in new policies.

On May 20, the PMO is expected to consider the issues affecting health insurance because the rate of growth is slowing and premiums are going up, sources from the government say.

It’s possible that Shaktikanta Das will chair the meeting due to being the Principal Secretary-2 to Prime Minister Modi. “Shaktikanta Das, Principal Secretary to the Prime Minister of India, Narendra Modi will chair the meeting, where DFS secretary M Nagaraju will make a presentation on issues in the health insurance sector on May 20,” one source aware of the developments said.

This meeting comes against a backdrop of a slowdown in the growth rate of non-life insurance coverage, especially for health insurance.

A significant portion of India’s non-life insurance portfolio comes from health insurance, but it is currently grappling with two major headwinds – rising premiums and a slowdown in coverage.

“This meeting may pave the way for regulatory or policy tweaks to revitalise India’s health insurance ecosystem,” the official said. Discussions are likely to focus on measures that could boost health insurance coverage, which remains below 60 crore individuals. Premium rationalisation at a time of an ongoing debate around GST impact, need for simplified products and grievance redressal may find mention in the meeting.

One of the key concerns for the industry is the Goods and Services Tax (GST) levied at 18 percent on health insurance premiums. Stakeholders argue that this high rate adds to the burden on policyholders, impacting affordability and slowing the uptake of health insurance products. Despite appeals from industry bodies and Minister of Road Transport and Highways Nitin Gadkari to the GST Council, consensus on the issue has been elusive.

“A rationalised GST rate on health insurance will directly reduce the cost for policyholders, encouraging greater enrolment and renewals, thereby increasing insurance penetration,” the person noted.

The meeting may discuss broader sector challenges such as the complexity of health insurance products, delays in claim settlements, and consumer dissatisfaction, contributing to the slowing growth of the sector, the person further added.

Slowing Coverage

Despite covering a lower proportion of population, health insurance coverage in India has remained in single digits since the pandemic. Data from regulator IRDAI in February showed that coverage of health insurance hit 57.29 crore by FY24, 4.2 percent higher than a year ago.

The growth was slower than the 5.7 percent increase in persons with health insurance witnessed in FY23.

Before the pandemic, between FY15 and FY18, the pace of addition of people under health insurance coverage was higher, at 18.7 percent per year on an average, covering 20 crore individuals. The period saw the number of people with health insurance rise from 28.8 crore to 48.1 crore by FY18.