Term life insurance policies and health insurance premiums for senior citizens may soon be exempt from GST, as a majority of a state ministerial panel supports tax cuts to benefit the public, according to an official, reported PTI.
The Group of Ministers (GoM) met on Saturday to discuss GST implications for health and life insurance. They proposed exempting GST on premiums for health insurance coverage of up to Rs 5 lakh for individuals, excluding senior citizens. However, an 18 per cent GST will remain for coverage exceeding Rs 5 lakh.
In a separate meeting, the GoM on GST rate rationalisation suggested adjustments to tax rates on various goods, including packaged drinking water, bicycles, exercise notebooks, luxury watches, and shoes.
The GST Council, which includes state finance ministers and is chaired by the Union Finance Minister, is expected to make a final decision on the GST for health and life insurance premiums and rationalise rates in its meeting next month.
"The rate rejig exercise will help the states and Centre to realise revenue gain of Rs 22,000 crore, which will help cover the revenue loss from a reduction in GST rates for insurance premiums," the official noted.
The GoM recommended lowering the GST on packaged drinking water (20 litres and above) from 18 per cent to 5 per cent. If approved, GST on bicycles priced under Rs 10,000 and exercise notebooks will also be reduced to 5 per cent from 12 per cent. Conversely, GST on shoes priced over Rs 15,000 and wristwatches over Rs 25,000 could increase from 18 per cent to 28 per cent.
Bihar Deputy Chief Minister Samrat Chaudhary, who leads the GoM on health and life insurance, emphasised the group’s commitment to providing relief, particularly for senior citizens. He stated that the GoM will submit its findings to the Council, with further meetings planned before the final report is delivered.
This was the inaugural meeting of the 13-member GoM formed last month to address tax rates. The panel includes ministers from states such as Uttar Pradesh, Rajasthan, West Bengal, and Kerala and is tasked with submitting its report to the GST Council by the end of October.
In the fiscal year 2023-24, the Centre and states generated Rs 8,262.94 crore in GST revenue from health insurance premiums and Rs 1,484.36 crore from health reinsurance premiums.
To compensate for potential revenue losses from tax reductions on essential goods, the GoM is considering raising tax rates on items like aerated drinks. Currently, GST operates on a four-tier system with rates of 5 per cent, 12 per cent, 18 per cent, and 28 per cent, where essential goods are taxed at lower rates while luxury items face higher taxes. The average GST rate has dipped below the revenue-neutral rate of 15.3 per cent, prompting discussions on rationalisation.