This article covers:
• Impact of GST on insurance affordability
• FM Sitharaman’s response to GST concerns
• Projected growth in life insurance premiums
• Public and industry reactions to GST on insurance
• Need for GST rationalization in insurance sector>
Exploring the 18% GST Impact on Life and Health Insurance
The implementation of the Goods and Services Tax (GST) at 18% on life and health insurance premiums in India has sparked a nationwide debate on its justification and impact. This tax reform, heralded as a significant step towards simplifying India’s complex tax system, has unintended consequences on the insurance sector’s accessibility and affordability. Union Finance Minister Nirmala Sitharaman’s defense of the GST rate on insurance amidst growing concerns highlights a critical balancing act between generating tax revenue and promoting insurance inclusivity.
FM Sitharaman’s Stand on GST: A Policy Perspective
In addressing the outcry over the 18% GST on health and life insurance premiums, FM Sitharaman pointed out that the tax rate was not a new imposition but a continuation of previous tax structures. However, this stance has been met with criticism from various quarters, including industry leaders and the general public. The primary contention lies in the belief that such a high GST rate exacerbates the challenge of low insurance penetration in India, which stands at roughly 3.2% of the GDP for life insurance and 0.94% for health insurance as of the 2022-23 data from the Insurance Regulatory and Development Authority of India (IRDAI).
Projected Growth vs. GST Hurdle: The Life Insurance Paradox>
Despite the GST burden, life insurance premiums in India are expected to witness an annual growth rate of 6.7% from 2024 to 2028. This optimistic projection is fueled by the rising demand for term life coverage, a youthful demographic, and advancements in Insurtech. However, the 18% GST poses a significant barrier to realizing this potential growth, as it may deter individuals, especially those from lower-income brackets, from purchasing or renewing their insurance policies.
Public and Industry Reaction: A Call for Rationalization
The reaction from both the insurance industry and the general public has been one of concern and calls for action. Industry experts argue that the high GST rate limits the accessibility of life and health insurance to a select few, thereby undermining efforts to achieve ’Insurance for All by 2047’—a vision set forth by the government. Public protests, led by opposition leaders and supported by citizens across the country, demand a withdrawal of the GST on life and health insurance premiums to make these essential financial tools more affordable.
Navigating the Way Forward: The Need for GST Rationalization
The debate over the 18% GST on life and health insurance underscores a larger issue within India’s insurance sector—balancing fiscal responsibilities with the need to increase insurance penetration. Rationalizing the GST on insurance premiums, possibly through a reduced tax rate or exemptions for certain segments, could serve as a pivotal step towards making insurance more accessible to the broader population. Such measures would not only alleviate the financial burden on policyholders but also support the industry’s growth trajectory amid India’s evolving socioeconomic landscape.
In conclusion, while the GST was introduced with the aim of tax simplification and increased revenue, its application on life and health insurance premiums raises questions about affordability and accessibility of insurance in India. FM Sitharaman’s defense of the GST rate reflects a governmental perspective on fiscal policy, yet the public and industry demand for GST rationalization highlights a critical need for policy adjustments. Moving forward, the government’s ability to balance tax revenue objectives with the goal of insurance inclusivity will be crucial in determining the future landscape of India’s insurance sector.
