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New Delhi: The Goods and Services Tax (GST) Council is scheduled to meet on Monday, in which the reduction of tax rates is expected to be discussed. tax burden It is proposed to reduce GST on health and life insurance policies. insurance premium There is resistance from many states, which fear significant loss of revenue, especially medical insuranceThe Times of India reported.
Less emphasis on GST health insurance
The debate on this topic continues Tax on Health Insurance The issue gained momentum after Union Transport Minister Nitin Gadkari urged the Finance Ministry to abolish GST on health insurance. In his letter, Gadkari highlighted the growing financial burden on policyholders due to the constant increase in insurance premiums, which often rise by 10 to 20 per cent annually. He argued that this increase puts pressure on Indian citizens, especially senior citizens, who are either retired or depend on their savings for survival.
As medical costs continue to rise, many in India question why an essential service such as healthcare is taxed so heavily. In a country with significant income inequality and a healthcare system in need of reform, health insurance is often seen as a necessity rather than a luxury. Despite this, insurance penetration in India remains relatively low, and additional taxes on health insurance only exacerbate the financial challenges faced by those seeking medical coverage.
States are reluctant to cut GST on insurance
According to a TOI report, there is pressure to reduce GST on health insurance, but many state governments are opposing the idea due to potential revenue loss. The GST fitment committee, which comprises officials from both the Centre and states, has been unable to reach a consensus on the matter. Many states fear that the tax cut could lead to a sharp drop in revenue, a concern that is further aggravated by the fact that they no longer have the compensation from the Centre that was given when GST was first implemented.
Between April 2021 and March 2024, the Centre and states collected over Rs 21,000 crore GST from health insurance premiums. In the previous fiscal year alone, this figure was estimated to be Rs 8,200 crore. With states getting half of the GST revenue, they will lose about Rs 4,100 crore annually if the tax is cut. Moreover, states also get 41% of the central GST, which means any reduction in the tax rate could further impact their finances.
An official told the Times of India that states no longer have the safety net they had earlier when they went for tax cuts, as the Centre would make up for any revenue loss through a compensation cess.
This financial strain has led even some of the strongest supporters of a lower GST, such as West Bengal (ruled by the Trinamool Congress) and Karnataka (ruled by the Congress), to publicly oppose any changes to the existing GST structure. These states fear that tax cuts will hurt their already strained budgets.
Low insurance coverage in India
A report by Niti Aayog highlights this harsh reality: nearly 30% of India’s population or about 40 crore people are still deprived of any kind of financial protection for healthcare. This lack of coverage leaves millions vulnerable to the high cost of medical treatment. The Economic Survey estimates that India’s insurance penetration, measured as a percentage of gross domestic product (GDP), will grow from 3.8% in FY23 to 4.3% by FY35. This growth is expected to be driven by rising demand for life insurance, especially term policies, as well as the growth of insurtech and a younger, more financially aware population.
Despite these optimistic forecasts, the current tax burden on health and life insurance remains a serious issue for consumers. Currently, these policies attract 18% GST, which many argue is too high a rate for essential services.
Other topics on the agenda in the GST meeting
The debate over GST on health and life insurance is likely to dominate the discussion, but the Council will also discuss other key issues during Monday’s meeting. One of these includes a status report on the taxation of online gaming, a topic that has been much debated. Additionally, clarifications on GST rules for branches of companies are expected to be discussed. This is particularly relevant for such companies. InfosysForeign airlines and shipping firms have been hit by demands from the Directorate General of GST Intelligence.
As is GST Council As the meeting gears up, all eyes will be on the discussions about insurance tax relief. The outcome could have far-reaching implications for consumers, especially those seeking health insurance, as well as state governments concerned about their revenue sources.
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