GST on Life and Health insurance Premiums

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Opposition demands rollback of 18% GST on health insurance premiums - Medical Buyer

Context

Opposition parties in India are demanding that Goods and Services Tax (GST) on life insurance and health insurance premiums should be withdrawn.

About

  • GST replaced all indirect taxes like provider tax and cess from 2017. 
  • Since GST encapsulates carrier tax, which applies to the insurance industry, its creation has resulted in an increase in premium amounts. 
  • GST on health and life insurance policies is fixed at 18%. 
  • Prior to GST, life insurance premiums were subject to 15% service taxes, comprising Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess. 
  • The increase from 15% to 18% impacted the end consumer (policyholders) by way of elevating their premiums amounts.

Argument in favour of enforcing the tax

  • GST is applicable to all insurance regulations seeing that insurance is a provider, and policyholders pay tax on their insurance premium.
  • Insurance regulations permit positive deductions at the same time as computing profits tax. The  tax-saving deductions, in particular on life insurance premiums, are Sections 80C and 80D of the Income Tax Act, 1961. 
  • Under Section 80C, a consumer can avail deductions of as much as Rs 1.5 lakh on the general insurance premium, such as the GST applicable on them. 

Argument for withdrawing the GST on the Premium

  • The GST on insurance in India is the highest in the world and that the situation needs to be addressed in order to attain the goal of “Insurance for All by 2047”, which was endorsed by the Standing Committee on Finance in its 66th report.
    • This report had endorsed rationalization of the GST rate on insurance products, especially health and term insurance.  
  • The high rate of GST affects a high premium burden, which acts as a deterrent to getting insurance regulations.
  • The Committee, with a view to make insurance more lower priced, recommend that GST charges applicable to medical health insurance merchandise, particularly retail regulations for senior citizens and microinsurance guidelines (up to limits prescribed underneath PMJAY, presently Rs 5 lakh), and time period rules can be reduced.

Goods and Services Tax (GST)

  • GST is a unified tax device that replaced multiple indirect taxes levied by both the Central and State Governments. 
  • The GST gadget follows a twin shape, comprising Central GST (CGST) and State GST (SGST), levied simultaneously by means of the Central and State governments, respectively. 
  • Additionally, an Integrated GST (IGST) is levied on interstate materials and imports, that is accumulated via the Central Government however apportioned to the destination country.

Goods and Services Tax (GST) Council

  • The Goods and Services Tax (GST) Council is a constitutional body set up under Article 279A of the Indian Constitution through the 101st Amendment Act of 2016.
  • The Union Finance Minister is the Chairperson of the GST Council.
  • The GST Council makes tips to the Union and the States on key GST-associated issues, including:
    1. Taxes, cesses, and surcharges to be subsumed under GST
    2. Goods and offerings to be challenge to or exempt from GST
    3. Model GST legal guidelines, concepts of levy, and apportionment of IGST
    4. Tax charges, thresholds, special provisions, and some other matter referring to GST

Source: The ToI

UPSC Mains Practice Question

Q. Performance of welfare schemes that are implemented for vulnerable sections is not so effective due to the absence of their awareness and active involvement at all stages of the policy process – Discuss. (2019)

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