The Goods and Services Tax (GST) Council is considering a proposal to exempt or reduce GST on term life insurance and health insurance premiums, potentially offering significant financial relief to senior citizens and middle-class policyholders. This move aligns with the government's objective to increase insurance penetration across India.

Currently, a standard GST rate of 18% is levied on health and life insurance premiums. For senior citizens paying ₹50,000 annually for health insurance, this translates to an additional ₹9,000 in GST. The high GST rate increases the cost burden, making insurance less accessible, especially when healthcare costs are rising. The 18% GST has been a pain point for policyholders and insurers, particularly in a country where less than 40% of people have health insurance and term life insurance penetration is below 4%.

A Group of Ministers (GoM) was formed to examine potential rate changes and has recommended a full GST exemption on term life insurance and health policies for senior citizens, along with a waiver for health covers up to ₹5 lakh. For individuals other than senior citizens, GST might be exempted for health insurance coverage up to ₹5 lakh, with the existing 18% rate retained for coverage above that amount.

The GST Council is expected to make a final decision on the recommendations, considering revenue implications, industry feedback, and consumer impact. While some advocate for a complete removal of GST, others suggest a moderate reduction to around 12% while retaining the Input Tax Credit (ITC). This could balance affordability, insurer sustainability, and government revenue objectives. The Council has previously expressed concerns about potential revenue losses and the disruption of the tax structure that exemptions could cause. They also cautioned that exemptions could result in blocked Input Tax Credit (ITC) and increased compliance challenges for insurance providers.

Lowering or removing GST could significantly lower costs for policyholders. For example, a senior citizen paying ₹50,000 annually could see their costs drop to ₹41,000 if GST is removed. Industry experts believe that cutting GST would not only ease household budgets but also boost insurance penetration. Increased accessibility and affordability could significantly alter the insurance landscape in India.

The Insurance Regulatory and Development Authority of India (IRDAI) supports the tax cut to promote insurance as a necessity. The GST Council's decision is highly anticipated, as it could provide much-needed relief and encourage more people to obtain insurance coverage.