The Parliamentary Standing Committee on Finance has suggested a reduction in the Goods and Services Tax (GST) on health insurance, especially for senior citizens. Additionally, it has advocated for equal treatment between public and private sector insurance companies regarding Tax Deducted at Source (TDS) on GST and their involvement in government-run insurance schemes.Financial services, encompassing premiums for health insurance, term insurance plans, and unit-linked insurance plans, are subject to an 18 percent GST rate. However, the application of GST differs for endowment plans. In the first year, the GST rate is 4.5 percent for premiums, while from the second year onwards, it reduces to 2.25 percent. For single-premium annuity policies in life insurance, the GST rate stands at 1.8 percent, applicable uniformly across all age groups. These rates are subject to potential review based on recommendations from the GST Council.The Standing Committee emphasized the necessity to streamline the GST rate on insurance products, notably health and term insurance, currently set at 18 percent. The committee highlighted that the elevated GST rate contributes to a substantial premium burden, dissuading individuals from acquiring insurance policies. To enhance the affordability of insurance, the committee proposed reducing GST rates for health insurance products, particularly retail policies for senior citizens and micro-insurance policies (up to prescribed limits under PMJAY or Pradhan Mantri Jan Aarogya Yojana, presently ₹5 lakh), as well as term policies.
The committee also acknowledged the issue of Tax Deducted at Source (TDS) on GST, which currently applies solely to public sector insurance companies. As per the CGST Act, a TDS rate of 2 percent is mandated on payments exceeding ₹2.50 lakh made to suppliers of taxable goods or services. This requirement, outlined in Section 51 of the CGST Act, includes public sector undertaking insurers. Private insurers, however, are exempt from this provision as they are not listed under the section. The Financial Services Department informed the Committee of its request to the Revenue Department to review the matter and take appropriate action.
Additionally, the Committee highlighted the mandatory participation of PSU insurance companies in government-run insurance schemes, which affects their profitability. To ensure a fair competitive landscape, the committee recommended that such provisions be uniformly applied to all industry participants.
Based on insights from the Motor Annual Report of the Insurance Information Bureau of India (IIB), the Committee noted that approximately 56 percent of vehicles, primarily commercial, are uninsured, posing risks to both vehicle owners and third parties in the event of accidents or damages. Consequently, the committee recommended the adoption of e-Challan enforcement mechanisms across states, leveraging data integration from IIN, mParivahan, and the National Information Centre. Furthermore, it proposed that financial institutions should consider extending loans only when proof of insurance coverage is provided.
