New Delhi – The GST Council, led by Finance Minister Nirmala Sitharaman, is scheduled to meet on Monday to discuss several key issues, with a primary focus on potentially reducing the 18% GST on health and life insurance premiums.
While there is growing support for lowering this tax burden, concerns persist about whether any reduction will actually benefit policyholders or simply be retained by insurance companies.
Key Concerns and Proposals:
- Impact on Consumers: There are fears that even if the GST on insurance premiums is cut, insurers might not pass the savings onto consumers. Post-COVID, insurance companies have raised premiums, citing increased claims, and the absence of anti-profiteering laws raises doubts about whether a tax reduction will translate into lower premiums.
- Proposed Relief: One proposal is to provide tax relief for insurance policies with annual premiums between ₹50,000 and ₹60,000. However, this may not significantly impact most middle-class families, as a typical family of four often pays around ₹50,000 for a health insurance policy with a ₹15 lakh cover, which may still be insufficient in severe cases. Senior citizens face even higher premiums due to age and health risks, highlighting the need for more comprehensive relief.
- System Complexity: Introducing new caps for tax benefits could complicate the GST system, which was designed to simplify taxation. Such adjustments might counteract the original intent of the GST.
- State Revenue Concerns: State governments are wary of the revenue loss that could accompany a GST reduction on health insurance. Last fiscal year, over ₹8,200 crore was collected from health insurance premiums, with states receiving half of this revenue. A tax cut could lead to significant shortfalls, particularly since states no longer receive compensation from the Centre for GST revenue losses.
Additional GST Council Agenda:
The Council will also review the recent implementation of a 28% GST on online gaming and continue its efforts against fake GST registrations, which have uncovered over ₹24,000 crore in suspected tax evasion.
As the Council prepares to deliberate, the challenge remains to ensure that any tax cuts are effectively passed on to consumers and to balance the need for state revenue preservation.
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