GST-Free Insurance May Soon Be a Reality

There is growing demand to remove the Goods and Services Tax (GST) from insurance premiums. Reports suggest that term insurance policies might be exempted from GST, with a decision expected to be made at an upcoming GST Council meeting.

While there is a possibility of exemption for term insurance policies, GST is likely to continue on investment-related insurance policies. Term insurance provides comprehensive coverage, whereas other policies offer returns along with insurance benefits. Hence, the exemption might not apply to all types of insurance policies.

Analysts estimate that exempting term insurance from GST could result in a revenue loss of approximately ₹200 crore for the central government. However, such an exemption could benefit policyholders and potentially increase the number of individuals covered by insurance.

Recently, Union Minister Nitin Gadkari wrote to Finance Minister Nirmala Sitharaman requesting the removal of GST on life and health insurance policies, sparking discussions on the matter. In response, opposition parties have also called for GST exemptions on insurance premiums. Currently, the central government imposes an 18% GST on health and term insurance, while traditional insurance plans are subject to varying rates: 4.5% on the first year’s premium and 2.25% thereafter.

It remains unclear whether the GST rates will be reduced for health insurance or if only term insurance will benefit from the exemption. The upcoming GST Council meeting is anticipated to provide clarity on these issues.