The proposal to lower the tax rate on premiums related to all kinds of insurance from life to health to third parties has been turned down by the committee of revenue officials from the Centre and States attached to the GST Council.

The Fitment Committee examines proposal for changes in rates for goods and services and therefore suggest ‘YES’, ‘NO’, or ‘Defer’. Based on these suggestions, GST Council gives its final recommendations which are then enforced through legislative changes and sub-ordinate legislations by the Centre and States/UTs. Currently, 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. The baseline rate for GST is 18 percent, though it is 4.5 percent on the first premium and 2.25 percent on the second and onwards premium. Also, it is 1.8 percent for a single premium annuity policy. In the case of health insurance, GST is applicable at the rate of 18 percent on premium. There has been consistent demand for reduction, but every time it has been turned down. This April, in a reply to a question in Lok Sabha, Finance Minister Nirmala Sitharaman had told health insurance, like the majority of other taxable supplies, is standard rated at 18 percent. In the pre-GST regime also, health insurance was standard rated. Further, insurance schemes such as Rashtriya Swasthya Bima Yojana, 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 a recommendation for reduction of GST, she clarified. There was a proposal to provide a blanket exemption from GST to general micro insurance products. These include a 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 microinsurance products having a sum insured up to ₹2 lakh are exempt from GST, demand is to do the same for such general insurance products too. The Committee felt since some of such general microinsurance products are already exempted, there may not be much merit in granting the blanket exemption.

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