GST Council Meet coming up: Relief on life and health insurance premiums likely on agenda

The 56th GST Council meeting is set to take place in June 2025 under the chairpersonship of Finance Minister Nirmala Sitharaman. The upcoming meeting is expected to take up the long-pending proposal for tax relief on life and health insurance premiums.

With the next Goods and Services Tax (GST) Council meeting likely to take place this month, expectations are that the Council is likely to take up the long-pending issue of tax relief for life and health insurance premiums, according to a report by Moneycontrol that cited people familiar with the development. The meeting is expected to take place possibly before the monsoon session of Parliament. The report further said that the Group of Ministers (GoM) will likely back a full GST exemption on term life insurance along with health cover for senior citizens.

Insurance regulator Insurance Regulatory and Development Authority (IRDAI) has already submitted its final comments before the Council. This is seen as a key input which was sought at the last meeting in December 2024.

According to government sources cited by Moneycontrol, the GoM on insurance is likely to reintroduce its earlier proposal recommending a complete GST exemption on term life insurance premiums and health insurance premiums for senior citizens. The GoM also suggested waiving GST on health insurance policies with coverage up to Rs 5 lakh, in a bid to enhance affordability for the general public.

 

Currently, life and health insurance policies attract 18 per cent GST. The Centre has been considering a reduction in this rate in a push towards achieving the ‘Insurance for All’ target by 2047. Industry stakeholders are, meanwhile, seeking a lower rate for better affordability and higher penetration.

According to government estimates, the proposed exemptions could lead to a revenue loss of around Rs 2,600 crore annually, with nearly Rs 200 crore from term life cover and Rs 2,400 crore from health insurance premium exemptions. However, sources indicated that the potential increase in insurance coverage across the country is expected to offset the fiscal cost.

The concerns were also raised by the insurance industry that highlighted the loss of input tax credit (ITC). Currently, insurers are allowed to claim input tax credit on expenses such as IT infrastructure, marketing, and administrative costs, which helps offset the GST collected from policyholders. If insurance is exempted from GST, this credit mechanism would no longer apply, compelling insurers to bear these costs themselves—possibly resulting in higher premiums.

One of the government sources told Moneycontrol, “…reducing the rate to 12 per cent will not give enough benefit to the consumer, and lowering it to 5 per cent would cause revenue loss through input tax credit,” adding, “the best option is to exempt.”

The push for GST relief comes around India’s low insurance penetration. The annual report of IRDAI had earlier reported a dip in insurance penetration, which fell to 3.7 per cent in FY24, down from 4 per cent the previous year. This marked the second consecutive decline in penetration, despite a 6 per cent increase in premium collections by life insurers. Additionally, life insurance penetration declined to 2.8 per cent, compared to 3 per cent in 2022-23

India’s insurance penetration is significantly lower than the global average of 7 per cent, up from 6.8 per cent in 2022.

Source::Financial Express ,  dated 10/06/2025.