Current GST rates and proposal to reduce them

Source: This post on Current GST rates and proposal to reduce them has been created based on the article “GoM set up to review 18% GST on health, life covers”, published in The Hindu on 10^th Sep 2024.

What is the news?

The GST Council recently initiated a potential review to address the increasing demand for a reduction in the 18% tax on health and life insurance premiums. They set a firm 50-day deadline for a new Group of Ministers (GoM) to assess and reconsider the tax rate.

About the Current GST Rate on Health and Insurance Policies

The current Goods and Services Tax (GST) rate on health and life insurance premiums is set at 18%. There has been a growing demand for reducing the 18% tax rate on insurance premiums due to the financial burden it places on policyholders.

GST Rate Changes and Exemptions

i) The GST Council approved a reduction in the GST rate for three cancer drugs- Trastuzumab Deruxtecan, Osimertinib, and Durvalumab- from 12% to 5%.

ii) The tax on car seat covers was increased from 18% to 28% to align with motorcycle seat taxes.

iii) The tax rate on some extruded savoury snacks was lowered from 18% to 12%, removing the distinction between these snacks and items like Namkeens and Bhujia.

Proposals for reducing the GST on health and life insurance premiums

1. Reducing the GST Rate:  A key proposal is to lower the current 18% GST rate on health and life insurance premiums, which could make policies more affordable for consumers. This would alleviate the financial burden on policyholders.

2. Complete Removal of GST on Insurance Premiums: There is also a suggestion to completely scrap the GST on insurance premiums. This move would significantly reduce the cost of purchasing insurance, especially important for life-saving policies like health insurance.

3. Exemptions for Certain Categories: The Council is considering providing exemptions for certain categories of insurance policies, such as group insurance policies or policies targeted at specific demographic groups like senior citizens or low-income individuals.

4. Differentiated Treatment for Group Insurance Policies: Special provisions may be introduced to treat group insurance policies differently, which could include lower tax rates or full exemption for certain types of group insurance plans.

5. Revenue Impact Review: Any reduction or removal of the GST on insurance premiums will undergo a detailed review of its impact on government revenues, ensuring that state finances are not adversely affected.

Potential Impact of Reduction of GST: Reducing or removing GST on health and life insurance premiums could offer financial relief to policyholders and boost insurance coverage in the country.

UPSC Syllabus: Indian economy