54th GST Council Meeting On September 9: Should 18% GST On Term Life & Health Insurance Premiums Be Removed?

The Finance Minister Nirmala Sitharaman-led GST council is likely to remove the 18% GST imposed on term life insurance premiums, in its 54th meeting scheduled next week. The council will meet on September 9 and is expected to announce a host of relief to various sectors. The insurance industry is also expecting reforms or tweaking in GST rates as well.

In the 54th GST Council meeting, the committee is expected to make a decision on removing the 18% GST levied on term life insurance premiums. This decision, if implemented, would provide much-needed relief to insurance customers who have been burdened by the additional tax.

Notably, the 18% GST levied on life and health insurance premiums has been a contentious issue for several years, with various stakeholders calling for its removal.

Sandeep Pareek, Partner, Indirect Tax, BDO India said, multiple stakeholders, including sitting ministers, have requested for exempting GST on term insurance as well as health insurance. It is likely that the GST Council may favourably consider this demand of the industry, especially if the revenue loss, due to the grant of such exemption, is not major.

However, Pareek added, "to allow the full effect of exemption from GST to be passed on to the public at large, the insurance companies would also need to be allowed full input tax credit, without requiring a reversal of credit due to exemption from GST on term insurance."

Why should GST on insurance be removed from insurance products? According to Pareek, one of the main reasons for exempting GST from term insurance products is to promote the term insurance plans, by making them more affordable to the masses.

Apart from the insurance sector, earlier, a PTI report stated that the council is likely to deliberate upon the status report on taxation of online gaming, in addition to the progress of the drive against fake Goods and Services Tax registration.

Further, the report added that the council may clear the amendments in GST law, which were part of the Finance Act, 2024.

Meanwhile, Minister for Road Transport & Highways in the Government of India, Nitin Gadkari has reportedly urged the FM to assess cutting GST on flex-fuel vehicles to 12%.

The GST Council, consisting of the Union Finance Minister and representatives from all States and Union Territories, was established to make decisions on various aspects of GST, including tax rates, exemptions, and administrative procedures. It played a crucial role in shaping the GST framework in India. On July 1, 2017, GST laws were implemented, replacing a complex web of Central and State taxes. Under the Indian GST, goods and services are categorized into different tax slabs, including 5%, 12%, 18%, and 28%. Some essential commodities are exempted from GST, Gold and job work for diamond attract low rate of taxation. Compensation cess is being levied on demerit goods and ceratin luxury items.

Also, in terms of revenue distribution, the GST Council plays a crucial role. It is a joint forum consisting of the Union Finance Minister and representatives from all States and Union Territories. The Council makes decisions on various aspects of GST, including tax rates, exemptions, and revenue sharing between the Central and State Governments.