Upcoming GST Council Meeting: Potential Discussion on Reducing Life and Health Insurance Premiums
56th GST Council Meeting Scheduled for June 2025
The 56th Goods and Services Tax (GST) Council meeting is planned for June 2025, led by Finance Minister Nirmala Sitharaman. This upcoming gathering is anticipated to address the long-awaited proposal for tax relief on premiums for life and health insurance.
As reported by Moneycontrol, the Council’s meeting this month is expected to reconsider the crucial issue of tax relief for life and health insurance premiums, as indicated by sources familiar with the matter. The meeting is likely to occur ahead of the parliamentary monsoon session. It is also reported that the Group of Ministers (GoM) is expected to support a complete GST exemption for term life insurance and health coverage for senior citizens. The Insurance Regulatory and Development Authority of India (IRDAI) has already provided its final feedback to the Council, which was a significant input requested during the previous meeting in December 2024.
Long-Term Efforts for Tax Relief
Government insiders informed Moneycontrol that the GoM on insurance is likely to reintroduce its previous proposal advocating a full GST exemption on term life insurance premiums as well as health insurance premiums for seniors. The GoM also proposed eliminating GST on health policies with coverage up to Rs 5 lakh to improve affordability for the public. Presently, both life and health insurance policies are subjected to an 18 per cent GST rate. The government is contemplating a rate reduction to drive progress towards the goal of providing ‘Insurance for All’ by 2047, while industry players are urging for lower rates to improve affordability and increase insurance penetration.
Potential Revenue Loss and Industry Impact
According to government projections, the suggested exemptions could lead to annual revenue losses of approximately Rs 2,600 crore, which includes around Rs 200 crore from term life insurance and Rs 2,400 crore from health insurance exemptions. Nonetheless, sources indicate that the anticipated rise in insurance coverage nationwide may compensate for the fiscal impact.
Concerns have also been voiced by the insurance sector regarding the potential loss of input tax credit (ITC). Currently, insurers can claim ITC on various expenses, including IT infrastructure and marketing costs, which helps mitigate the GST burden on policyholders. If insurance were exempt from GST, this credit mechanism would be invalidated, obliging insurers to absorb these costs themselves, which could lead to increased premiums. One official quoted by Moneycontrol stated, “…reducing the rate to 12 per cent will not provide substantial benefits to consumers, and a reduction to 5 per cent would incur revenue losses from input tax credit,” adding, “the most viable solution is to grant a full exemption.”
Insurance Penetration Falls Below Global Average
The push for tax relief coincides with India’s struggling insurance penetration rates. The annual report from IRDAI indicated a decline in insurance penetration to 3.7 per cent in FY24, a drop from 4 per cent the preceding year. This represents the second consecutive year of decline, despite a 6 per cent rise in premium collections by life insurers. Moreover, life insurance penetration fell to 2.8 per cent, down from 3 per cent in 2022-23. Compared to the global average of 7 per cent, which increased from 6.8 per cent in 2022, India’s insurance penetration remains notably low.
