A Group of Ministers (GoM), tasked with reviewing the manner of Goods and Services Tax levy on life and health insurance premiums, has taken the view that term life insurance could be exempt from tax, along with health insurance cover up to Rs 5 lakh and premiums paid by ‘senior citizens’ above 60 years.
The panel, however, decided against a complete tax waiver for health insurance, where the GST is levied at 18% at present.
The GoM, which met on Saturday, will submit a report to the GST Council by October-end, which will finally take a call on the issue.
A complete exemption of term-life insurance from GST will cost the exchequer about Rs 200 crore annually, while exempting senior citizens’ health insurance premiums will cost another Rs 3,000 crore, sources said. Between FY22 and FY24 the total GST collected from health insurance premiums was about Rs 21,000 crore.
Another GoM on rate rationalisation, which also met here simultaneously, decided to recommend tweaks (hikes and cuts) in the GST rates on around 100 products, a move that would fetch the government additional annual revenue of Rs 22,000 crore, which is to be equally shared between the Centre and states.
The panel decided to recommend lowering of GST rates 20-litre packaged drinking water bottles, bicycles and exercise notebooks to 5%, and raising taxes on high-end wrist watches and shoes, among other products. It also favoured taxing wrist watches above Rs 25,000 and shoes above Rs 15,000 at 28% from 18% at present. A member of the GoM said: “The surplus Rs 22,000-crore will compensate for revenue losses from exempting certain health and life insurance premiums.”
Currently, 18% GST is imposed on life insurance premiums for term policies and family floater policies, and on health insurance. “Some members suggested reducing the GST from 18% to 5% on health and life insurance premiums, but most were not in favour of such a move and opted for giving concessions to the elderly,” said a member of the GoM.
On merging of GST slabs, one member of the second panel said that “it was not discussed prominently in the meeting”. FE had reported earlier that most states are not in favour tinkering the slabs at the moment, fearing loss of revenue. At present, there are four slabs in the GST structure—5%, 12%, 18% and 28%.
The GST Council in its September 9 meeting had decided to set up a 13-member GoM to decide on tax on health and life insurance premiums. Bihar’s deputy chief minister Samrat Choudhary is the convenor of the GoM.
