Decision on GST on health and medical insurance likely in November

A decision on the goods and services tax on insurance products is likely to be taken up in the next meeting of the GST Council in November. Discussions on rate rationalisation as well as compensation cess are also likely to be taken forward over the coming months.
 
The 54th meeting of the GST Council on Monday decided to set up a Group of Ministers that would look into the issue of GST on both life and health insurance. The GoM that would include members of the GoM on rate rationalisation headed by Bihar Deputy Chief Minister Samrat Choudhary along with members from other states would submit its report on the issue by end of October, Finance Minister Nirmala Sitharaman told reporters after the Council meeting.
 
“The GST Council, which will meet in November, will take up this report,” she said, noting that while the matter was discussed by the Council there remain several issues that require more analysis and discussion. These include issues around GST on group insurance taken by residents’ welfare associations and companies, the treatment of pure life insurance vis a vis term insurance, mental health-related insurance as well as GST on insurance for senior citizens. “There were a lot of discussions…should we reduce the rate or exempt insurance. What happens to group insurance? Is there a separate carve out required for senior citizens,” she noted.
 
At present, an 18% GST is levied on insurance but there has been a growing demand to withdraw it or lower the rate.
 
According to an official release, the GoM members are Bihar, UP, West Bengal, Karnataka, Kerala, Rajasthan, Andhra Pradesh, Meghalaya, Goa, Telangana, Tamil Nadu, Punjab, and Gujarat.
 
MS Mani, Partner, Deloitte India noted that while the decision on a lower rate or exemption for health insurance is expected by November, it is expected that the decision would consider all forms of health/ medical insurance including family floaters, group policies, optional add-on coverages so that insurance companies have clarity on the changes they need to incorporate.
 
Abhishek Jain, Indirect Tax Head & Partner, KPMG said the GoM's recommendation by end of October on the GST rate for health and life insurance will be one to watch closely.
 
The Council was also presented with a status report on rate rationalisation by the GoM and the finance minister said that discussions will take place on it going forward. “From now, when the meetings happen, they will talk about the rates and the slabs,” she said. The GoM is expected to meet on September 23 once again to take up the issue further.
 
Meanwhile, to look into the future of the compensation cess, the GST Council has also set up a fresh GoM. The compensation cess is expected to end by March 2026 and the repayment of the loan is likely by January 2026. The GoM will look into what happens to the cess post its sunset date. “The GoM will decide how to go forward with the compensation cess. It will no longer be the compensation cess but how to continue with it,” the FM noted.
 
Meanwhile, a committee of secretaries led by Revenue Secretary Sanjay Malhotra has also been formed to look into the issue of excess integrated GST paid to states and how it can be retrieved.
 
The GST Council was also given a status update on the GST on online gaming, casinos and horse racing but any review of the 28% levy or retrospective tax notices was not taken up.
 
The FM noted that in the six months since the tax was levied, revenue from online gaming increased by 412% to Rs 6909 crore as compared to Rs 1,349 crore in the six months prior to the notification. Similarly, the revenue from casinos increased by 30% to Rs 214 crore from the prior Rs 164 crore in the same time frame.
 
The Council also took up several issues around industry concerns including significant relief for the airlines industry. It has now decided to exempt import of services by an establishment of a foreign airlines company from a related person or any of its establishment outside India, when made without consideration. The council also recommended to regularise the past period on ‘as is where is’ basis, said the release.
 
“This will put to rest the recent show cause notices where a GST demand of approximately Rs 39,000 crore was raised by the DGGI on foreign airlines operating through branch offices in India,” said Rajat Bose, Partner, Shardul Amarchand Mangaldas.
 
Saurabh Agarwal, Tax Partner, EY said the exemption of GST on the import of services by related parties for airlines is a much-needed relief for the aviation sector. “However, the shipping industry continues to face similar challenges, which still need attention,” he said.
 
Sources indicated that the issue around tax notices to Infosys was not taken up at the meeting.
Other important decisions of the Council included lowering the GST rate on cancer drugs namely, Trastuzumab Deruxtecan, Osimertinib and Durvalumab to 5% from the current 12%.

It has also recommended GST exemption on the supply of research and development services by a Government Entity; or a research association, university, college or other institution notified u/s 35 of the Income Tax Act using government or private grants. This follows tax notices to seven such institutions.

The Council recommended rollout of a pilot for B2C e-Invoicing, following the successful implementation of e-invoicing in the B2B sector.