India’s GST Council is inching closer to making decisions that could redefine how life and health insurance premiums are taxed. Currently taxed at a flat 18% GST, these services are crucial yet expensive for many, sparking long-standing debates on tax relief.
The 54th GST Council meeting in September 2024 revived hopes with the formation of a Group of Ministers (GoM) to evaluate potential exemptions or GST reduction on insurance premiums, especially for senior citizens and basic insurance policies. Officials will discuss this decision in depth in the 55th GST Council Meeting. Let us understand where we stand with this exemption, uncovering the recent discussions, potential implications, and what lies ahead.
The Current Taxation Landscape in the Insurance Industry
Before exploring proposed changes, it’s important to understand the existing framework.
- Health insurance premiums are uniformly taxed at 18% GST, regardless of coverage or age group.
- Similarly, term life insurance and critical illness policies bear the same tax burden, making them less affordable for those with limited financial resources.
Such high GST on insurance premiums directly impact the insurance penetration rate in India, which remains one of the lowest globally. Policymakers argue that such essential services should be more accessible, urging a re-evaluation of their tax treatment.
This concern laid the groundwork for in-depth discussions around GST on health insurance during the 54th GST Council meeting.
GST Council’s Focus: Senior Citizens and Basic Policies
During the 54th meeting, the council recognized the need for targeted interventions, particularly for:
- Senior Citizens: Their higher premiums due to age-related health risks amplify the financial strain caused by GST.
- Policies Covering Up to ₹5 Lakh: Viewed as essential coverage for the average household.
The Council announced the formation of a 13-member GoM, led by Bihar Deputy Chief Minister Samrat Chaudhary, to deliberate on these points. The GoM was tasked with:
- Exploring full GST exemptions for senior citizens.
- Considering partial exemptions or reduced rates for policies with basic coverage.
- Evaluating revenue impacts to ensure fiscal stability.
“Every GoM member wants to give relief to people. Special focus is on senior citizens. We will submit a report to the council. A final decision will be taken by the council,” remarked Bihar Deputy Chief Minister- Samrat Chaudhary.
GoM recommendations on Insurance GST are anticipated in the 55th GST Council meeting, scheduled for 21st December 2024.
Revenue Implications: Weighing the Costs of Tax Relief
As the GoM evaluates the feasibility of GST exemptions, revenue considerations are front and center. Here’s how different scenarios could affect the government’s coffers:
1. Full Exemption for Senior Citizens:
- Estimated revenue loss: ₹645 crore annually.
- Impact: This move would cater to a vulnerable group without significantly denting revenue due to their relatively smaller policyholder base.
2. Partial Exemption for Basic Coverage (up to ₹5 Lakh):
- Estimated revenue loss: ₹1465 crore annually.
- Impact: Benefits a large segment of middle-income families but creates substantial revenue gaps.
3. Exempting Individual Health Insurance Premiums:
- Estimated revenue loss: ₹3495 crore annually.
- Impact: Exempting all individual health insurance premiums will result in the most revenue loss as compared to other scenarios. While it will benefit a large segment of people, it might not be the favored decision by the council.
4. Flat Rate Reduction (e.g., to 5%):
- Estimated loss: ₹1730 crore annually.
- Impact: Provides equitable relief while reducing compliance complexities for insurers.
These scenarios highlight the difficult decision that lies in front of the council.

How Will the Decision of Exemption Impact Various Stakeholders?
The ripple effects of reduction of GST on life insurance go beyond government revenues. Multiple stakeholders will be impacted by the decision in following ways:
For Policyholders
- Affordability: Lower taxes would reduce premium costs, making essential insurance accessible to more people.
- Financial Security: Enhanced insurance coverage could significantly boost India’s social safety net.
For Insurers
- Market Expansion: Relief measures could create more demand, particularly among first-time buyers and underserved rural markets.
- Operational Adjustments: Insurers might face short-term disruptions in implementing revised GST rates.
For the Government
- Revenue Trade–offs: GST collections from the insurance sector, though small, play a critical role in overall tax revenues.
- Policy Alignment: Striking a balance between tax relief and fiscal goals aligns with broader financial inclusion strategies.
- Better Accessibility: The government shall also consider the inclusion and revenue from more people as reduced or exempted tax rates lead to better accessibility.
Expectations from the Next GST Council Meeting
The upcoming 55th GST Council meeting on 21st December is expected to act on the GoM’s recommendations. The government is likely to prioritize:
- Relief for senior citizens and low-coverage policies.
- Strategies to counteract revenue losses, such as retaining full GST rates for high-premium policies.
- A phased implementation approach to minimize disruptions.
Given the Council’s focus on public welfare, a partial reduction or exemption seems probable, though full exemptions for all insurance products are unlikely.
Bridging the Gap: A Path Forward
The conversation around GST on life and health insurance underscores India’s evolving approach to taxation. With the GoM set to submit its findings soon, the country awaits a transformative decision. While potential exemptions could bring relief to millions, the government’s ability to manage revenue gaps will define the success of these measures.
As we approach the 55th GST council meeting, the decisions made could set a precedent for balancing financial inclusion with fiscal discipline, marking the beginning of a new chapter in India’s tax policy.