How Nitin Gadkari’s Call To Remove GST On Health & Life Insurance Premiums Could Transform Healthcare
Currently, the government levies an 18 per cent GST on life insurance and health insurance premiums
It's not the first time that the demand for reducing GST on life insurance and health insurance has surfaced. The industry has been consistently asking for a cut in GST on health and life insurance premium. However, this time, Cabinet Minister Nitin Gadkari has sought not just a reduction, but a complete removal of GST on health and life insurance premiums. Currently, the government levies an 18 per cent GST on life insurance and health insurance premiums. In a letter to Finance Minister Nirmala Sitharaman, Gadkari expressed the concerns of the Nagpur Divisional Life Insurance Corporation Employees Union to remove GST on life and medical insurance premiums.
The union also highlighted issues such as the differential treatment of savings via life insurance, the reinstatement of income tax deductions for health insurance premiums, and the consolidation of public and private sector general insurance companies. To ease the financial burden on senior citizens Gadkari urged Sitharaman to consider these suggestions, particularly the removal of GST on life and medical insurance premiums.
Gadkari raised the point that taxing life insurance premiums is equivalent to taxing life's uncertainties and that individuals protecting their families should not be penalised through premium taxes, and the GST on medical insurance premiums impedes the growth of this important sector.
Why Is GST Exemption Important?
It is said that insurance is not a luxury but a vital service that provides financial protection during health emergencies. Exemption in GST on health premium becomes important as it might encourage more people to invest in insurance products. The goal is to make insurance more accessible to the general population while ensuring that all citizens receive adequate coverage.
“Life and medical insurance products are essential in today's society. The waiver of GST will enable increased penetration owing to lower prices and provide a level playing field between out-of-pocket healthcare spending with no GST for most use cases and premiums paid as part of insurance or health plan subscriptions,” Shashank Avadhani Co-founder & CEO, Alyve Health said.
A substantial portion of the government budget is dedicated to the healthcare sector. The government has a responsibility to ensure affordable healthcare for all citizens. While public healthcare initiatives are essential, private insurance plays a crucial role in supplementing these efforts. By making insurance more affordable, the government can encourage a more financially secure population.
Highlighting the importance of GST exemption, CA (Dr) Vijay Kumar Gupta, Member, NICR of ICAI said, “Currently, the GST on health and life insurance premiums is high. The general principle is that luxury items should be taxed at higher rates, while necessities should either be tax-free or taxed at lower rates. Nitin Gadkari expressed the concern that insurance is a necessity, not a luxury. Removing this tax would alleviate financial burdens and encourage more people to invest in their health and well-being.”
“The increased insurance penetration would also stimulate growth in the healthcare sector and also reduce the out-of-pocket expenses during medical emergencies. This will be a win-win situation for all. Nitin Gadkari wrote a letter to Nirmala Sitharaman, urging the removal of GST from health and life insurance premiums,” Kumar added.
How GST Exemption Will Impact Health-care Sector
Currently, GST is applied to all insurance policies as they are classified as services, which requires policyholders to pay tax on their insurance premiums. The GST rates and exemptions for these services, including health insurance premiums, are set according to the recommendations of the GST Council.
Insurance providers have noted an increase in retail inflation, which has driven up their operational costs. They emphasise that medical inflation far exceeds retail inflation, with the latter being recorded at 5.08% in June this year. According to Dr Vinit Banga, Director -Neurology & Head Neurointervention ,Fortis Hospital,Faridabad, the removal of GST on insurance premiums would likely lead to a surge in policy purchases, boosting the insurance sector's growth. For the healthcare sector, increased insurance coverage can result in higher utilisation of medical services, leading to better health outcomes. As per him, insurers may see a rise in revenue due to higher policy uptake, while healthcare providers might experience increased demand for their services.
