The GST Council, chaired by Finance Minister Nirmala Sitharaman, is scheduled to convene today to discuss numerous pressing problems, with a focus on lowering the 18% GST on health and life insurance premiums.
While there is considerable support for cutting the tax burden, questions remain about whether the benefits will truly reach policyholders or remain with insurance corporations.
One of the primary concerns is that even if GST is reduced, insurers may retain the financial gains rather than pass them on to customers.
Companies hiked rates following COVID, claiming more claims, and many state ministers believe this would continue even if GST is decreased. With anti-profiteering rules no longer in effect, there's no certainty that a tax decrease will result in lower rates for policyholders.
A plan is under consideration to give tax exemption for insurance policies with yearly premiums between ₹50,000 and ₹60,000. However, the majority of middle-class households may not benefit greatly from this.
A normal family of four pays roughly ₹50,000 for a health insurance policy with a ₹15 lakh cover, which may still be insufficient in the event of a catastrophic sickness. Senior citizens face considerably higher costs owing to age and health concerns, making widespread relief important.
Furthermore, imposing such restrictions on tax advantages may complicate the GST system, which was initially designed to simplify taxation. Any new cut-offs may generate complications that the system was meant to prevent.
State governments are also concerned about the revenue loss that may result from the GST cut on health insurance. Last fiscal year, health insurance premiums generated around ₹8,200 crore, with states getting half of that money.
A tax decrease might result in a significant gap, especially given that states no longer receive reimbursement from the Centre for GST income losses. The Council will assess the impact of the 28% GST on online gaming and combat false GST registrations, which have already resulted in over ₹24,000 crore in alleged tax evasion.
As the Council deliberates these issues, the difficulty is to ensure that any tax cuts benefit consumers rather than businesses, while also balancing the need for income preservation at the state level.
