The Tale of GST and Insurance in India in 2024

It all started with a small news flash: “Union Finance Minister Nirmala Sitharaman announces 18% GST on health and life insurance premiums.”

(Here’s some context: the GST on insurance premiums was previously capped at 15%.)

In the backdrop of an already booming insurance industry, where the increased demand and supply have been smartly accompanied by a hike in premiums for health insurance and life insurance products, this tax spike has become a heavily discussed topic in the Parliament sessions.

Such has been the magnitude of this discussion and its subsequent impact that this hike in premium taxation is now being reconsidered.

However, before we start talking about the intended timeline of this discussion, let’s clear out a few facts first -

GST on the Insurance products in 2024

As per the latest updates, the GST on the insurance products are as follows -

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Why is there a controversy surrounding GST and insurance in 2024 in India?

1. The insurance point of view

Since the pandemic, insurers have cited reasons like an increase in lifestyle ailments, a rise in healthcare service charges, and COVID-related claims and increased premiums for both health insurance plans and term insurance policies.

This had already become a tad bit troublesome for policyholders. Yet, since the pandemic is a fresh memory regarding the fragile mortality of human life and the enormous financial burden brought on by hospital bills, the purchase intent never went down (as explained by the age demographics of insurance buyers below -)

In fact, the IRDAI has experienced one of the best insurance penetrations in the country post-pandemic.

Here’s a look at the current and predicted market for insurance in India -

However, with the recent declaration of increased taxes on premiums, there is a growing concern that insurance might not remain affordable and accessible to all.

 2. The GST point of view

GST (Goods and Service Taxes) was 1st launched in 2017 amidst huge controversies. One of the major highlights of these debates was the fact that India is a developing country and is, hence, possibly not ready for a taxation system like GST. Despite all of this, GST came down at full force in almost all sectors.

However, when it comes to insurance, policyholders already pay 15% of the taxes on premiums. Add to this the sky-high premiums for senior citizens, and now we have a real hurdle. The question now stands: will this GST hike be discouraging for potential policyholders? Especially considering that a significant % of the Indian population is young, heavily finance-savvy and leaning towards a mixed approach of “investment + protection + savings” - this might just be a losing edge for an industry that had just started getting boosted.

What should you expect from the 54th meeting of the GST Council?

Such is the controversy and heat from the opposition, the common masses, and the insurers that Nirmala Sitharaman has been forced to sit down for the 54th GST Council meeting wherein a Group of Ministers headed by Bihar Deputy Chief Minister Samrat Choudhary and ministers from other states have been called in to decide upon the matter in hand.

The meeting is expected to address a few issues on the GST on insurance premiums, including but not restricted to -

1. Should the taxes on premiums be removed completely or reduced?
2. What would happen to the taxes on premiums in the case of group health insurance plans?
3. Will there be any leeway for the taxes imposed on health insurance for senior citizens?

Simultaneously, concerns are cropping up about the fact that even if such tax deductions are offered, insurers might not let the perks trickle down to the policyholders. The context is that insurers have already been hiking premium charges using COVID-related claims as a shield. Now, the insurance providers might just “carpe diem” the opportunity to hang on to the spiked premiums.

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Conclusion

The tale of GST and insurance in India in 2024, which has been triggered by a single declaration from the Union Finance Minister Nirmala Sitharaman, might just prove to be a pivotal point in paving the path of the future of insurance in the country. This decision might heavily affect the predicted growth of insurance penetration and the estimated premium collection over the next few years. Whether this change will be for the better or worse is yet to be seen. As of now, the entire country, including the policyholders and the policy sellers, awaits the end of the 54th meeting of the GST Council and the subsequent decision.

However, with the pending updates on IRDAI’s changes as requested to insurance providers and the pending GST situation, it seems the insurance industry is in for a heavy-weight change in landscape.