The Goods and Services Tax (GST) on insurance policies has become a significant issue in India’s tax landscape, combining financial burdens with regulatory complexities. Recently, Nitin Gadkari, a prominent Cabinet Minister, has urged the government to eliminate the 18% GST on life and health insurance. He argues that taxing insurance is essentially taxing life’s uncertainties, a sentiment that has resonated in the market.
The financial impact of this GST is substantial. Over the past three years, nearly ₹24,000 crore has been collected from this sector. Gadkari’s call for reform has already made waves, causing a notable uptick in the stock prices of major insurance companies. In response, the Opposition staged a protest in Parliament before the Finance Bill was passed, calling for a reduction in GST on health insurance, driven by Trinamool Congress leader Derek O’Brien.
Finance Minister Nirmala Sitharaman has highlighted that about 74% of the revenue from this GST is allocated to state governments. She pointed out that while calls for reducing GST are common, none of the proponents have suggested lowering it at the state level.
In a recent development, CNBC-Awaaz reported that a proposal under review could dramatically reduce the GST rate on insurance premiums from 18% to 5%. This potential shift is being considered by the GST rationalisation committee, which will discuss the proposal in its meeting scheduled for August 22. Although a reduction seems likely, a complete exemption from GST is not on the table.
The news has been well received by the insurance sector, with shares of HDFC Life, LIC, SBI Life, and ICICI Prudential showing positive movement. Former minister Jayant Sinha, who played a pivotal role in the development of the GST, supports the move, emphasizing that removing GST from insurance is crucial for modern living.
As the policy shift inches closer, the focus remains on balancing financial relief for policyholders with the fiscal needs of both state and central governments.