India eyes health insurance tax relief
India eyes health insurance tax relief | Insurance Business Asia
Life & Health
India eyes health insurance tax relief
Expert highlights insurance penetration challenges
Life & Health
By
Roxanne Libatique
The Goods and Services Tax (GST) Council held its 54th meeting in New Delhi on Monday, chaired by India’s Finance Minister Nirmala Sitharaman.
The council deliberated on various issues, including potential changes to the GST on health insurance premiums and tax relief for foreign airlines.
Key participants included finance ministers from several Indian states and senior officials from the Ministry of Finance.
Major agenda items included tax reductions on medical insurance premiums and the taxation of online payments over INR 2,000.
The GoM will be led by the deputy chief minister of Bihar and will include new members to focus on this specific issue.
The group has been asked to submit its report by the end of October 2024.
Sitharaman said the council plans to finalise its decision based on the report from the GoM.
Implications of lowering GST for Indian insurance industry
Pavanjit Singh Dhingra, joint managing director of Prudent Insurance Brokers, commented on the potential implications of lowering GST for the insurance industry.
He stressed that a reduction in GST for health and life insurance is crucial, particularly for white-collar employees who lack comprehensive social security coverage.
“For health and life insurance, we believe it’s important for the GST rates to be reduced because these are essentially forms of social security,” he said.
He noted that the Employees’ State Insurance Corporation (ESIC) offers protection mainly for blue-collar workers, but no equivalent exists for other segments of the workforce.
Dhingra acknowledged that lowering the GST rate could slightly impact government revenue but argued that the effect would be minimal.
“The contribution from retail health insurance to GST collections is quite small, estimated to be less than 0.4% of the total collection,” he said, adding that a reduction could improve insurance penetration and broaden access to coverage.
Input tax credits recommended for employee benefits
Dhingra suggested offering input tax credits for employee benefits, such as health insurance, or lowering the GST rate to 5% from the current 18%.
At 18%, he explained, employers face higher costs for offering employee health benefits, which can reduce the overall coverage available to workers.
Dhingra also recommended that providing tax incentives for employer-sponsored insurance – particularly for post-retirement coverage – could increase long-term protection.
“Offering GST credits to employers who continue to sponsor health insurance post-retirement would further incentivise long-term coverage,” he said.
Challenges to insurance penetration in India
Narendra Bharindwal, vice president of the Insurance Brokers Association of India (IBAI), commented on India’s relatively low insurance penetration rate of 4%, compared to the global average of 6.8%.
He argued that reducing or removing GST on essential insurance products like term life insurance could help address this shortfall by making policies more affordable.
“By making this product more affordable, the government can encourage more individuals to obtain adequate coverage, which is vital for enhancing overall financial resilience,” he said.
Bharindwal also said that India’s GST collections remain strong, reaching INR 1.82 trillion in July 2024, providing fiscal room to reduce the tax burden on essential services such as insurance.
He said that lowering the GST rate could encourage more individuals and companies to purchase insurance, improving overall financial security.
“Given the increasing premium collections despite low penetration, a tax reduction could significantly enhance the attractiveness of insurance, driving higher adoption and providing crucial financial protection to a larger segment of the population,” he said.
The council is expected to revisit these discussions in November, following the report from the GoM. Decisions on whether to reduce the GST on health insurance and other matters are anticipated at that time.
Related Stories
Keep up with the latest news and events
Join our mailing list, it’s free!
