2024-09-07 06:25:43
Concerns about health insurance GST cuts
Table of Contents
- 1 Concerns about health insurance GST cuts
- 2 GST on health insurace: Helping only high-premium policies?
- 3 States worry about revenue loss from GST cut
- 4 Here are the PAA (People Also Ask) related questions for the title: **GST Council to Discuss Reducing Tax Burden on Health and Life Insurance Policies**:
- 5 Best health insurance in India
Table of Contents
- 1 Concerns about health insurance GST cuts
- 2 GST on health insurace: Helping only high-premium policies?
- 3 States worry about revenue loss from GST cut
- 4 Here are the PAA (People Also Ask) related questions for the title: **GST Council to Discuss Reducing Tax Burden on Health and Life Insurance Policies**:
The idea of reducing GST on life insurance seems to be mostly agreed upon, with state finance ministers showing fewer concerns about it. However, the real problem lies with health insurance, and it’s not just about losing revenue. Official are exploring options that could help consumers, but there’s a concern that insurance companies may keep the benefit for themselves and not pass it on to people buying health insurance, a state finance minister told ToI.
Another minister said that although there’s pressure to lower the burden on consumers, companies have been raising premiums ever since the COVID-19 pandemic, citing increased claims. While COVID-related claims have since decreased, insurance companies haven’t given any relief to policyholders. Instead, they claim that the cost of handling claims is still higher than the premiums they collect.
Ministers will make an effort to suggest a formula that cuts the burden on consumers and also ensures that the benefit is not pocketed by companies, he minister told ToI.
Previously, the government had anti-profiteering laws that ensured businesses passed on tax benefits to consumers when GST rates were reduced. These laws allowed authorities to step in and make sure companies didn’t pocket the savings. However, with fewer GST rate changes happening, the government has made these laws inactive. This leaves officials without the power to guarantee that consumers will see lower premiums if the GST is cut.
Many within the government now agree that the 18% GST on health insurance is too high and needs to be reduced. But without an active anti-profiteering body, there’s little assurance that insurance companies will reduce premiums accordingly.
One idea on the table is to provide tax relief for policies with annual premiums between ₹50,000 and ₹60,000. However, this may not help most middle-class families. A typical family of four, including two children, often ends up paying around ₹50,000 for a health insurance policy with a cover of ₹15 lakh. But in case of a serious illness, even this amount can be inadequate. For senior citizens, the cost of insurance is much higher due to age and health risks.
Moreover, setting such cut-offs for tax benefits could complicate the GST system, which was originally designed to be simple. Yet, there seems to be a push within the bureaucracy to bring back these kinds of complexities.
States worry about revenue loss from GST cut
The call to lower GST on health insurance gained momentum after Union Transport Minister Nitin Gadkari urged the Finance Ministry to scrap GST on these policies. In his letter, Gadkari pointed out the financial burden on citizens, especially retirees and senior citizens who rely on their savings.
This sparked a wider debate about whether it’s fair to heavily tax something as essential as healthcare. In a country with income inequality and a healthcare system in need of improvement, health insurance is seen as a necessity, not a luxury. Despite this, India’s insurance coverage remains low compared to other countries, and the tax on health insurance only makes it harder for people to afford.
According to a report from NITI Aayog, about 30% of India’s population, or around 40 crore people, don’t have any financial protection for healthcare. This leaves many vulnerable to high medical bills. While the Economic Survey predicts that India’s insurance coverage will rise from 3.8% of GDP in FY23 to 4.3% by FY35, the immediate issue of the 18% GST on health insurance continues to be a burden for consumers.
Even though there’s pressure to lower GST on health insurance, many states are hesitant because of the potential revenue loss. The GST fitment committee, which includes officials from both the Centre and the states, hasn’t been able to agree on a solution. States worry that cutting the tax could result in a major drop in revenue, especially now that they no longer receive compensation from the Centre, as they did in the early days of GST.
Between April 2021 and March 2024, the Centre and states collected over ₹21,000 crore in GST from health insurance premiums. In the last fiscal year alone, this figure was around ₹8,200 crore. States get half of this revenue, meaning they would lose around ₹4,100 crore if the GST on health insurance is reduced. Additionally, states receive 41% of the central GST, meaning a further dent in their finances if the tax rate is lowered.
(With ToI inputs)
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GST Council to Discuss Reducing Tax Burden on Health and Life Insurance Policies
As the GST Council prepares for its next meeting, a key topic on the agenda is the high GST on health and life insurance policies. While there is pressure to lower the tax burden, states are concerned that insurance companies may not pass the savings on to consumers if there’s no system in place to ensure it happens.
Concerns about Health Insurance GST Cuts
The idea of reducing GST on life insurance seems to be mostly agreed upon, with state finance ministers showing fewer concerns about it. However, the real problem lies with health insurance. Officials are exploring options that could help consumers, but there’s a concern that insurance companies may keep the benefit for themselves and not pass it on to people buying health insurance [[1]].
Ministers will make an effort to suggest a formula that cuts the burden on consumers and also ensures that the benefit is not pocketed by companies [[1]]. Previously, the government had anti-profiteering laws that ensured businesses passed on tax benefits to consumers when GST rates were reduced. However, with fewer GST rate changes happening, the government has made these laws inactive, leaving officials without the power to guarantee that consumers will see lower premiums if the GST is cut [[1]].
GST on Health Insurance: Helping Only High-Premium Policies?
One idea on the table is to provide tax relief for policies with annual premiums between ₹50,000 and ₹60,000. However, this may not help most middle-class families. A typical family of four, including two children, often ends up paying around ₹50,000 for a health insurance policy with a cover of ₹15 lakh [[1]].
States Worry about Revenue Loss from GST Cut
The call to lower GST on health insurance gained momentum after Union Transport Minister Nitin Gadkari urged the Finance Ministry to scrap GST on these policies [[1]]. However, many states are hesitant because of the potential revenue loss. The GST fitment committee, which includes officials from both the Centre and the states, hasn’t been able to agree on a solution. States worry that cutting the tax could result in a major drop in revenue, especially now that they no longer have the benefit of anti-profiteering laws [[1]].
According to a report, fully exempting or lowering the GST on health insurance and re-insurance could lead to a revenue loss of up to ₹3,500 crore [[3]]. This is a significant concern for states, which are already facing revenue pressures.
Options on the Table
Another option on the table is reducing the GST rate on all health insurance services to 5%, without the benefit of input tax credit (ITC) [[2]]. This could help reduce the tax burden on consumers, but it’s unclear whether insurance companies will pass the savings on.
The Way Forward
As the GST Council meets to discuss the issue, it’s clear that there are no easy solutions. While reducing the GST on health and life insurance policies is a popular move, it’s essential to ensure that insurance companies pass the savings on to consumers. The government must find a way to balance the need to reduce the tax burden with the need to protect revenue.
In the meantime, consumers are left to bear the brunt of the high GST on health insurance policies. With India’s insurance coverage remaining low compared to other countries, it’s essential to make health insurance more affordable for citizens. The government must act swiftly to address the issue and ensure that health insurance is within reach of all citizens.
References:
Best health insurance in India
GST on Health Insurance: Concerns and Challenges
As the GST Council prepares for its next meeting, the high GST on health and life insurance policies has become a significant topic of discussion. While there is a growing consensus to lower the tax burden on consumers, states are worried that insurance companies may not pass on the benefits to policyholders if there’s no system in place to ensure it happens.
Current GST Rate on Health Insurance
Currently, all types of health and life insurance policies are subject to an 18% GST [[2]]. This has led to a significant increase in premiums, making it difficult for many Indians to afford health insurance.
Concerns about GST Cuts on Health Insurance
One of the major concerns is that insurance companies may not reduce premiums even if the GST rate is lowered. This is because companies have been increasing premiums since the COVID-19 pandemic, citing increased claims, and have not provided any relief to policyholders despite a decrease in COVID-related claims [[1]].
Lack of Anti-Profiteering Laws
Previously, the government had anti-profiteering laws that ensured businesses passed on tax benefits to consumers when GST rates were reduced. However, with fewer GST rate changes happening, the government has made these laws inactive, leaving officials without the power to guarantee that consumers will see lower premiums if the GST is cut [[1]].
GST on Health Insurance: Helping Only High-Premium Policies?
One idea being considered is to provide tax relief for policies with annual premiums between ₹50,000 and ₹60,000. However, this may not help most middle-class families, who often pay around ₹50,000 for a health insurance policy with a cover of ₹15 lakh [[1]].
States Worry about Revenue Loss from GST Cut
States are also worried about the revenue loss from a GST cut on health insurance. The call to lower GST on health insurance gained momentum after Union Transport Minister Nitin Gadkari urged the Finance Ministry to scrap GST on these policies, citing the financial burden on citizens, especially retirees and senior citizens who rely on their savings [[1]].
GST Refund on Health Insurance for NRIs
On a separate note, Non-Resident Indians (NRIs) can claim a GST refund on health insurance purchased from an Indian insurance company if they have paid the premium from an NRE account [[1]].
Private Health Insurance: GST-Free in Some Countries
Interestingly, private health insurance is GST-free in some countries, consistent with the general treatment of health services under the GST [[3]].
Conclusion
the GST on health insurance is a complex issue that requires careful consideration. While lowering the GST rate may provide relief to consumers, it is essential to ensure that insurance companies pass on the benefits to policyholders. The government needs to explore options that benefit consumers and address the concerns of states and insurance companies.
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