The upcoming GST Council Meeting in Rajasthan, scheduled for December 21, 2024, is set to deliberate on a significant policy change pertaining to the Goods & Services Tax (GST) on health and life insurance premiums.
The Council, chaired by the Union Finance Minister Nirmala Sitharaman and comprises of state finance ministers, which aims to make health and life insurance plans more affordable for customers.
GST Exemption for Health & Life Insurance Premiums
Currently, insurance premiums attract an 18% GST on top of the premiums. This contributed over ₹16,000 crore to the state exchequer in the financial year 2023-24, up from ₹2,101 crore in 2019-20.
Earlier this year, the Group of Ministers proposed exempting GST on health and life insurance policies up to ₹5 lakhs for seniors. However, discussions are now underway to extend this exemption to all policyholders, regardless of age.
Statement from the Finance Minister
Finance Minister Nirmala Sitharaman emphasised that any reduction in GST on insurance premiums would directly benefit policyholders by making the policies more affordable. She noted that the final decision would be made during the December 21, 2024 GST Council meeting.
Impact on Insurance Stocks
As a result of this, the stocks of some health insurance companies rallied, including Niva Bupa with over a 10% increase, and Star Health with over a 2% intraday increase:
| SCRIP | Company Name | Intra-day price as of 12 PM (04DEC2024) | % Change |
|---|---|---|---|
| NSE:NIVABUPA | Niva Bupa Health Insurance Company Ltd | ₹90 | 10.3 |
| NSE:ICICIGI | ICICI Lombard General Insurance Co Ltd | ₹1,896 | 2.13 |
| NSE:HDFCLIFE | HDFC Life Insurance Company Ltd | ₹647 | 1.98 |
| NSE:SBILIFE | Sbi Life Insurance Company Ltd | ₹1,462 | 1.49 |
| NSE:STARHEALTH | Star Health and Allied Insurance Company Ltd | ₹483 | 1.46 |
| NSE:LICI | Life Insurance Corporation of India | ₹972 | 0.27 |
| NSE:GODIGIT | Go Digit General Insurance Ltd | ₹348 | -0.09 |
| NSE:ICICIPRULI | Icici Prudential Life Insurance Comp Ltd | ₹683 | -0.45 |
Impact on Insurers
While an exemption in GST on insurance premiums may sound enticing in the beginning, this could, in fact, lead to an unexpected increase in the premiums for customers, as insurers will not be eligible to claim input tax credit (ITC) on their expenses.
For the uninitiated, input tax credit is a system where you can claim the tax you paid against the tax you receive, thereby reducing your tax liability. This will not be applicable for companies under two scenarios – 1) if there is a 5% GST on the service, or 2) if there is no GST on the service.
Impact on Consumers
If approved, a decrease in GST to 12% could lead to reduced insurance premiums, thereby encouraging more people to purchase health and life insurance plans. This move also aligns with the government’s objective of increasing insurance penetration for every family across the country.
However, an exemption or a reduction to 5% GST could lead to an increase in premiums for the end consumer as insurers cannot claim input tax credit.
