Context:
This year has seen a rise in the cost of health and life insurance premiums in India, further exacerbated by the addition of an 18% Goods and Services Tax (GST). This increase has made insurance less affordable for many, sparking protests by opposition leaders in Parliament who demand the removal of GST on these premiums. In a significant move, Union Minister Nitin Gadkari has reached out to the Finance Minister, arguing that the imposition of GST on insurance premiums adversely affects life’s uncertainties and stifles growth within the industry. This issue underscores the tension between government revenue needs and the financial burden on consumers.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- India’s Insurance Sector
- GST Impact on Insurance
- Policy Rationale and Financial Implications
- Challenges and Recommendations
India’s Insurance Sector
- Industry Performance: In the fiscal year 2023-24, the general and life insurance sectors in India saw substantial revenues, with health insurance generating Rs 1,09,000 crore and life insurance amassing Rs 3,77,960 crore, with a significant contribution from LIC.
- Regional Contributions: Maharashtra, Karnataka, Tamil Nadu, Gujarat, and Delhi significantly contributed to health insurance, accounting for 64% of total premiums, highlighting regional disparities in insurance distribution.
- Penetration Trends: A decline in life insurance penetration from 3.2% to 3% alongside stable non-life insurance penetration at 1% suggests a stagnation or reduction in market depth year-over-year.
GST Impact on Insurance
- Tax Overhaul: The implementation of an 18% GST on insurance, replacing previous taxes and cesses, has led to increased premium costs, impacting affordability amidst a backdrop of 14% medical inflation.
- Legislative Feedback: Parliamentary discussions have acknowledged the public’s call for reduced GST on insurance to alleviate financial burdens on consumers.
Policy Rationale and Financial Implications
- GST Framework: Managed by the GST Council, the tax structure aims to standardize the fiscal approach to services like insurance, where recent collections amounted to significant sums, indicating a robust revenue stream from this sector.
- Tax Relief Measures: Despite existing tax deductions under income tax provisions, the high GST rate has sparked debates about its impact on policy affordability and the broader goal of universal insurance coverage by 2047.
Challenges and Recommendations
- Premium Hikes: Notable increases, such as a 50% hike by a major insurer, have intensified scrutiny over GST’s role in escalating costs.
- Expert Opinions: Critiques suggest that India’s GST rate on insurance is among the highest globally, potentially hindering the expansion of insurance coverage.
- Parliamentary Review: Recent recommendations from the Standing Committee on Finance advocate for a more balanced GST rate to encourage policy uptake and support the national initiative for comprehensive insurance access by 2047.
-Source: Indian Express
