18% GST On Life, Health Insurance: Is It Justified, And If So To What Extent?
Goods and Services Tax (GST) is one of the most significant reforms that the government has undertaken since independence. It did away with myriad regulations, simplified the tax structure, and increased tax collections spectacularly, enabling governments to initiate social welfare schemes and build for the future. And above all, it has economically integrated India. However, there have been discussions about the viability of 18% GST on Health and Life Insurance policies.
The debate has gained momentum after calls from various sections of society requesting a review of the 18% GST rate on what is termed as “uncertainties of life”.
According to the Minister of State for Finance Pankaj Chaudhary, the GST collection from health insurance premiums and life insurance premiums for FY24 was Rs 8,262.94 crore and Rs 1,484.36 crore respectively. Cumulatively, the GST premium is nearly Rs 10,000 crore.
To put this in perspective, the FY25 Union budget allocation for Ayushman Bharat, which provides basic health insurance coverage to 50 crore underprivileged people and senior citizens amounts to Rs 7,500 crore. Hence, one could argue that the GST being paid by retail insurance customers, who typically belong to higher earning segments, are paying for health insurance of the more vulnerable sections of society. There would be a dent in this financing if the GST on health and life insurance were to be removed.
