GST relief for individuals, senior citizens on health insurance premiums? Decision expected today

The 54th GST Council meeting could bring in possible relief to individuals and senior citizens, with a likely reduction in GST on health insurance premiums. 

An ANI report quoting sources suggests the council is set to discuss lowering the current 18% GST rate on these premiums, a move that could ease financial pressures on those seeking coverage.

A fitment committee, consisting of central and state tax officials, reviewed the proposal to cut GST on health premiums on Sunday.  Business Today could not independently verify the report by ANI.

Their findings, along with an analysis of the revenue impact, will be presented before the GST Council today. While a complete exemption from GST on health insurance premiums is on the table, the existing 18% GST rate on group health policies is expected to remain unchanged.

In addition, there are reports that the council may consider taxing online payments above ₹2,000, which are currently untaxed when made through payment gateways.

The GST Council, chaired by Finance Minister Nirmala Sitharaman, includes state ministers among its members. Last month, Bihar Deputy Chief Minister Samrat Chaudhary, who leads the GST Group of Ministers on rate rationalization, acknowledged ongoing discussions about changing rates for the health insurance sector.

West Bengal Finance Minister Chandrima Bhattacharya has also advocated for a reduction in the 18% GST rate on life and health insurance premiums, stating, "I have placed the request for reducing GST on life and health insurance. I have been told that the fitment committee is looking into it."

Amid the uncertainty over fate of GST on your insurance policies, here is a primer on how rates are currently applicable on your health and life insurance policies. The comparison reveals that GST is only levied on the risk element and not the investment part. The details:   

Health Insurance: Health insurance policies attract an 18% GST on the total premium paid. This is straightforward, as the full premium amount is subject to this rate.

Term Insurance: Term insurance policies, often considered the most economical form of insurance, also incur an 18% GST on the premium. Additional riders such as critical illness or personal accident covers will also attract GST on their specific premiums. The GST is levied on the full amount as term plans constitute only risk element in the premium value and therefore GST is levied at the rate of 18% on the total premium.

Traditional Plans: Traditional life insurance plans have a tiered GST structure based on the policy year. The first year attracts a GST rate of 4.5%, while subsequent years attract a rate of 2.25%. 

Unit Linked Insurance Plans (ULIPs): ULIPs, which combine insurance and investment, have a different GST structure. In Unit Linked Insurance Plans, the GST is levied on mortality and other charges component at the rate of 18%. The amount invested in the market is after deducting GST charges. 

Importantly, under the Income Tax Act, the GST amount is included in the eligible deduction under Section 80C for life insurance and Section 80D for health insurance. Understanding these GST nuances can help policyholders make informed decisions about their life insurance investments and avail the maximum tax benefits.