Wait for GST reduction on life, health insurance gets longer as GST Council’s Fitment committee turns down proposals

Shishir Sinha | | Updated on: Jun 26, 2022

The Fitment Committee feels lowering of tax will lead to cascading of input taxes

The committee of revenue officials from the Centre and States attached to GST Council has turned down proposal to lower tax rate on premium related with all kind of insurance from life to health to third party.

The committee, known as Fitment Committee, examines proposal for changes in rates for goods and services and accordingly recommend ‘YES’, ‘NO’ or ‘Defer’. Based on these recommendations, GST Council gives its final recommendations which is then implemented through legislative changes and sub-ordinate legislations by the Centre and States/Union Territories (with legislature).

Documents, as seen by BusinessLine, showed a proposal was placed before Fitment Committee to give its suggestion on removal of GST on life and health insurance policy. However, the committee felt “exemption or lowering of tax will lead to cascading of input taxes and result in distortion of tax structure.”  Accordingly, it recommended no change for both life and health insurance.

Three situations

At present, for life insurance, GST is applicable in three situations - Insurance Risk Premium, fee & delayed loan interest paid due to delay in payment of premium and interest in time, and Annuity Policies. Baseline rate for GST is 18 per cent, though it is 4.5 per cent on first premium and 2.25 per cent on second and onwards premium. Also, it is 1.8 per cent for single premium annuity policy.

In case of health insurance, GST is applicable at the rate of 18 per cent on premium. There has been consistent demand for reduction, but every time it has been turned down. This April, in a reply to question in Lok Sabha, Finance Minister Nirmala Sitharaman had said health insurance, like majority of other taxable supplies is standard rated at 18 per cent. In pre-GST regime also, health insurance was standard rated.

Further, insurance schemes such as Rashtriya Swasthya Bima Yojana (RSBY), Universal Health Insurance Scheme, Jan Argoya Bima Policy and Niramaya Health Insurance Scheme that are catering to economically weaker sections of the society and differently abled, are already exempted. Further, healthcare services are also exempt from GST. Representations to reduce the GST on health insurance were placed before the GST Council in its 31st meeting held on December 22, 2018. In its 37th meeting held on September 20, 2019, GST Council did not make recommendation for reduction of GST, she clarified.

General micro insurance

There was a proposal to provide blanket exemption from GST to general micro insurance products. These include health insurance contract, any contract covering belongings such as hut, livestock, tools or instruments and any personal accident contract that can be on an individual or group basis. Since, life micro insurance products having sum insured up to ₹2 lakh are exempt from GST, so demand is to do the same for such general insurance products too. The Committee felt since some of such general micro insurance products are already exempted, so there may not be much merit in granting blanket exemption.

3rd party insurance for CVs

Another proposal before Fitment Committee was to exempt GST on third party insurance for commercial vehicles. At present rate is 18 and 12 per cent. Two arguments were given - category wise share of accidents from trucks is less and no ITC for GST is claimed by majority of truck operators. After consideration, the committee opined that rate has already been lowered to 12 from 18 per cent. Further reduction will result in revenue and loss and distortion of ITC (Input Tax Credit) chain. Accordingly, the committee suggested for no change.

Published on June 26, 2022
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