GST Council Poised to Cut Insurance Premium Taxes: Final Decision Expected in Upcoming Meeting
The Fitment Committee submits detailed analysis on potential tax cuts for life, health, and reinsurance premiums.
In a significant development, the GST Council is moving towards a consensus on reducing the Goods and Services Tax (GST) on life, health, and reinsurance premiums. A formal decision is anticipated in the Council’s next meeting, according to reliable sources. This initiative, if implemented, could provide relief to millions of policyholders across the country.
The Fitment Committee, which consists of tax officials from both the Centre and state governments, presented a comprehensive report on Monday, offering a detailed analysis of the financial implications of reducing the GST on insurance premiums. The committee’s report is seen as a key step towards a possible tax cut, which has been a longstanding demand from policyholders and industry experts alike.
GST Reduction Gains Broad Support
Sources confirm that the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, has achieved a broad agreement on the need to lower the current 18% GST rate on life and health insurance premiums. However, the specifics and modalities of this reduction are expected to be finalized in the next council meeting. “Most states are on board with the rate reduction as rising GST collections offer the fiscal space needed for taxpayer-friendly reforms,” said an insider familiar with the discussions.
The 54th meeting of the GST Council is currently underway, with state ministers participating in discussions that could have a major impact on the insurance sector. Given the recent uptrend in GST collections, which now consistently reach around ₹1.75 lakh crore per month—almost double the collections from GST’s inaugural year in 2017—the timing appears favorable for such tax reforms
Major Relief for Policyholders
If the GST rates on insurance premiums are reduced, it will directly benefit millions of policyholders by making premiums more affordable. Industry analysts estimate that this move could make both life and health insurance products more accessible, encouraging wider participation in the insurance market. This is particularly critical as the demand for insurance has surged in the post-pandemic period, with more individuals seeking financial protection for their health and life.
Historical Perspective and Recent Developments
Before the implementation of GST in 2017, insurance premiums were subject to service tax. After GST’s nationwide rollout, service tax was replaced by GST, which raised the overall tax burden on premiums. In 2023-24 alone, the Centre and states collected ₹8,262.94 crore in GST from health insurance premiums and ₹1,484.36 crore from health reinsurance premiums.
The issue of taxing insurance premiums has been a hot topic in recent parliamentary debates. Several opposition leaders have called for the complete exemption of health and life insurance premiums from GST, arguing that these products are essential services. Even Union Transport Minister Nitin Gadkari advocated for tax cuts in his correspondence with Finance Minister Nirmala Sitharaman.
In response, Sitharaman noted that 75% of the GST collected is distributed to the states, and urged opposition members to rally their respective state finance ministers to propose the tax reduction within the GST Council. West Bengal Finance Minister Chandrima Bhattacharya raised the issue in a meeting of the Group of Ministers (GoM) on rate rationalization last month, leading to the matter being referred to the Fitment Committee for deeper analysis.
What’s Next?
The upcoming meeting of the GST Council could provide clarity on this issue, with industry experts eagerly awaiting the outcome. Should the tax reduction be approved, it would mark a significant shift in the taxation of insurance products, aligning with the government’s broader goal of improving affordability and accessibility in the insurance sector.
For now, the stage is set for a potential tax break that could benefit millions, foster greater financial security, and reinforce India’s growing insurance market.
