Insurance companies have increased premiums on health and life insurance policies exponentially this year which, together with the 18% Goods and Services Tax (GST), has made insurance less affordable for many sections of the country’s population.
Opposition leaders including Leader of Opposition in Lok Sabha Rahul Gandhi protested at Parliament’s Makar Dwar on Tuesday, demanding the withdrawal of GST on life insurance and health insurance premiums.
Let’s understand about the arguments in favour of imposition of GST and arguments against the imposition of GST in detail:
GST on health and life insurance premiums:
1. GST replaced all indirect taxes like service tax and cess from July 1, 2017. Currently, GST on health and life insurance policies is fixed at 18%.
2.Since GST includes service tax, which applies to the insurance industry, its introduction has resulted in an increase in premium amounts.
3.Before GST, life insurance premiums were subject to 15% service taxes, comprising Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess.
4.The increase from 15% to 18% impacted the end consumer — that is, policyholders — by raising their premiums amounts.
5.This, along with the runaway cost of treatment — medical inflation was estimated to be 14% towards the end of last year — has made buying medical insurance difficult for many people.
Same is the case with term insurance policies.
Arguments on favour of imposition of GST:
1.GST rates and exemptions on all services, including GST on health insurance premium, are prescribed on the recommendations of the GST Council, which is a constitutional body comprising the Union Finance Minister and ministers nominated by governments of states/ Union Territories.
2.GST is applicable to all insurance policies since insurance is a service, and policyholders pay tax on their insurance premium.
3. It’s a revenue earning segment for the government, which fetched Rs 21,256 crore in GST during the last three financial years, and another Rs 3,274 crore from the reissuance of health policies.
4.Insurance companies say the rise in retail inflation has added to their overall costs. Medical inflation is much higher than retail inflation (5.08% in June this year), they point out.
( Hence, GST alone is not the culprit)
Argument for withdrawing the GST on the premium:
1.The main issue is the large increases in premium on health insurance policies this year — a leading public sector insurer has hiked the premium by 50%.
2.While the the confederation has pointed out that the GST on insurance in India is the highest in the world — and that the situation needs to be addressed in order to attain insurance regulator IRDAI’s goal of “Insurance for All by 2047”, which was endorsed by the Standing Committee on Finance.
3.This report had recommended rationalisation of the GST rate on insurance products, especially health and term insurance.
4.The high rate of GST results in a high premium burden, which acts as a deterrent to getting insurance policies, it had said. “The Committee, with a view to make insurance more affordable, recommend that GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to limits prescribed under PMJAY, presently Rs 5 lakh), and term policies may be reduced,”
5.It is being argued that “In markets like Singapore and Hong Kong, there is no GST or VAT on insurance.
INSURANCE SECTOR IN INDIA
1.The general insurance industry collected Rs 1,09,000 crore premium under the health portfolio in fiscal
2023-24.
2.Life insurance companies mobilised Rs 3,77,960 crore premium from customers in FY2024, with LIC alone accounting for Rs 2,22,522 crore.
3. Maharashtra, Karnataka, Tamil Nadu, Gujarat and Delhi — contributed about 64% of the total health insurance premium in 2022-23; all other states together contributed the remaining 36%.
4.According to a Swiss Re Sigma report, insurance penetration in India’s life insurance sector reduced from 3.2% in 2021-22 to 3% in 2022-23, and remained stagnant at 1% in the non-life insurance sector.
5.As such, India’s overall insurance penetration reduced to 4% in 2022-23 from 4.2% in 2021-22.
About IRDAI:
- IRDAI was founded in 1999, is a regulatory body created with the aim of protecting the interests of insurance customers.
- It is a statutory body under the IRDA Act 1999 and is under the jurisdiction of Ministry of Finance.
- It regulates and sees to the development of the insurance industry while monitoring insurance-related activities.
- The powers and functions of the Authority are laid down in the IRDAI Act, 1999 and Insurance Act, 1938.
Composition of IRDAI:
-Insurance Regulatory and Development Authority of India is constituted by an act of parliament. The Authority is a ten-member body, specified in section 4 of the IRDAI Act of 1999, consisting of
1.a Chairman;
2.five whole-time members;
3.four part-time members.
All are appointed by the Government of India.