A receipt for health insurance from X stated: "Policy Period: One Year, Gross Total premium: Rs 52 076, GST 18% Rs 9,374," Another post reads: "Health insurance is not a luxury, it's a necessity." Social media users have raised concerns about the 18% Goods and Services Tax on health and term insurance. the GST Council will most likely take a decision to lower the high GST rates at its November meeting. There are many reasons why it should lower the rate. India is grossly underinsured and a high tax rate would be unjust. In countries such as the US, UK, and South Africa (a Brics-member country), people pay less tax on insurance.
India's insurance penetration rate is only 4%. A report by the Standing Committee on Finance stated that in 2021-22 insurance penetration (percentage insurance premiums to GDP) was only 4.2%, which is lower than the global average of 7.0%.
India has no social security and a shaky medical infrastructure run by the government.
Even though the additional tax of 18% on term and health insurance could reduce the number of people who opt for insurance, it may even discourage them from doing so. These rates are higher than those in the US, UK, and South Africa.
Sandeep Agrawal, a tax expert with India Today Digital, said that lowering the GST rate for insurance products will directly reduce the cost of premiums.
RC Sankhla (former Chief Commissioner of Customs & GST) told India Today Digital that a reduction in tax rates would also attract more insurance companies and better services.
Term policies provide pure insurance coverage and do not offer returns, unlike Unit-Linked Insurance Policies.
The 18% GST has been criticized by both within the BJP and in the opposition. However, the government still has not eliminated or reduced the insurance tax.
NITIN GADKARI CALLED FOR A REDUCTION OF GST ON INSURANCE
Nitin Gadkari, Minister of Road Transport and Highways in the Union Government, expressed his concerns to Nirmala Sitharaman.
"Levying GST to life insurance premiums is like taxing the uncertainty of life." "The Union believes that the person who insures against the risks of life to protect the family from these uncertainties should not pay tax on the premium purchased to cover this risk," Gadkari said in his letter.
The GST regime went into effect on 1 July 2017. The rate has been discussed for years, but to no avail.
The opposition also expressed its concern about a 18% GST on insurance.
A group of INDIA MPs protested the 18% GST on Insurance. They held up placards that referred to "tax terrorism."
The government was able to collect Rs 24,500 crores in GST through health and reinsurance over the last three years. However, this comes at a cost to the insured.
Reports indicated that the GST Council would discuss , lowering the GST rate for life and health insurance rates. The GST Council, has decided to defer the discussion and will revisit it at its next meeting scheduled for November 24.
The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana scheme in India covers medical costs up to Rs. 5 lakhs for those living below the poverty level (BPL). The Union Cabinet expanded the health coverage to all seniors aged 70 and over regardless of their income in September.
The government does not offer health insurance to middle-class tax payers.
India Today Digital analyzed data from countries that have a higher penetration of insurance to better understand the GST. It also interviewed experts to find out why people pay a high tax rate for insuring their health and life.
South Africa, UK and US Term and Health Insurance
South Africa recently approved the National Health Insurance system (NHI), which is intended to cover medical costs of all citizens and especially those who are not insured.
The government has said that those covered by the NHI will not be covered by private medical plans. This is a notable approach, since many countries with national health systems allow private insurance as a way to improve treatment options.
The tax structure for health and life insurance is different in countries such as the UK, US and Germany.
In the UK, premiums paid by employers for health insurance are taxed.
In the US, employees pay a Medicare tax on their wages in addition to tax-free benefits for life insurance.
These are countries that have a higher penetration of insurance and lower insurance taxes than India.
According to a CafeMutual Report, the US has a penetration rate of 11,7%, UK at 11.1%, and South Africa at 12.2%.
Insurance penetration in India is 4%.
Experts on 18% GST on Term and Health Insurance
The experts were of the opinion the GST rate for term and health insurance should be reduced.
India Today Digital reports that the reduction of 18% GST will make insurance premiums cheaper and more appealing to the common people. It will also ensure a broader coverage, ensuring medical services for all.
He added that "it will also bring in more players, which will lead to healthy competition and better insurance services."
Tax expert Sandeep agrawal said that lowering the premium rate would be beneficial to buyers and increase insurance penetration in India.
"A reduction of GST on insurance products directly lowers the cost of premiums to customers." If GST was reduced from 18% down to 12% the premiums paid by policyholders would be proportionately lower. It makes insurance more accessible and affordable, which could increase the penetration of the insurance market, said Sandeep Agrawal.
"Lower rates could lead to an increased market expansion, higher rate of renewal, and encourage existing policyholders opting for enhanced coverage, or add-ons. This would ultimately boost financial protection." This change is also in line with government initiatives to improve insurance penetration in India where coverage levels remain low when compared to international standards", Agrawal said.
This will have a positive effect on the economy.
A lower rate will also create more jobs, and increase the growth of the economy through ripple effects. Sankhla added that it will be of great benefit to senior citizens, who face steep increases due to their age.
Why is GST levied on Health and Term Insurance?
Why is GST at 18% charged on health and term insurance, when there is no service provided until the person dies or becomes ill?
"GST is levied on medical and term insurance premiums, because these products are considered a continuous risk-coverage service even though actual benefits (claims), such as death or illness, are dependent on specific events. Agrawal told India Today Digital that term insurance is a service which provides financial security and protection in the event the policyholder dies.
Experts say that even though it may appear as if there is no service being rendered, service is still being rendered.
Health insurance includes administrative support and coverage of medical expenses even if there are no claims. Agrawal says that although it may appear as if no service is rendered before a claim occurs, the ongoing risk management of the insurance provider and its promise of protection under GST law are considered to be taxable services.
Experts agree that even though insurance is a service, the 18% GST on health and term insurance premiums needs to be reduced. Indians pay higher taxes than those in the US and UK, as well as South Africa. They urgently need lower insurance rates.
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