The high cost of insurance premiums has been a persistent barrier for many in India, hampering the growth and accessibility of life and medical insurance. In a recent appeal, Union Minister Nitin Gadkari has urged Finance Minister Nirmala Sitharaman to eliminate the 18% GST on these premiums, a move that could significantly boost insurance penetration and make it more affordable for the average Indian.
The Current Scenario and Its Challenges
GST Impact on Insurance Premiums Currently, life insurance premiums attract an 18% GST, a significant cost addition for policyholders. For health insurance, this tax further discourages individuals from securing adequate coverage, despite the pressing need for comprehensive health protection in a country where out-of-pocket healthcare expenses are high (India Today) (Business Today).
Low Insurance Penetration India's insurance penetration remains low, with only about 35% of the population covered under health insurance as of 2021. This is concerning, given the vast population and the increasing medical costs (India Today).
The Potential Benefits of Removing GST on Insurance Premiums
Increased Affordability and Accessibility Removing the GST could lower the cost of insurance premiums, making them more affordable for a larger segment of the population. This can encourage more people to invest in life and health insurance, providing them with financial security and reducing the burden on public healthcare systems.
Boosting Insurance Penetration With more affordable premiums, the insurance sector could see a significant increase in the number of policyholders. This would not only benefit individuals but also enhance the overall economic stability by spreading risk and reducing the financial impact of unforeseen events.
Economic and Social Security Broader insurance coverage can lead to greater social security, reducing the financial strain on families during medical emergencies or after the loss of a breadwinner. It can also contribute to economic growth by enabling individuals to save and invest more of their disposable income rather than setting it aside for potential medical expenses.
Conclusion
Nitin Gadkari's proposal to eliminate the 18% GST on life and medical insurance premiums presents a significant opportunity to enhance the affordability and accessibility of insurance in India. If implemented, this move could lead to higher insurance penetration, better financial security for families, and overall economic growth.
FAQs
Why is there an 18% GST on insurance premiums? GST on insurance premiums was introduced to unify the tax structure and eliminate the cascading effect of multiple taxes. However, this has increased the cost of premiums, making insurance less affordable for many (Aditya Birla Capital).
How does the removal of GST impact policyholders? Removing GST would lower the overall cost of premiums, making insurance more affordable and accessible, which could lead to increased coverage and financial protection for more people.
What is the current penetration of health insurance in India? As of 2021, health insurance penetration in India was around 35%, with a significant portion covered under government-sponsored schemes (India Today).
What are the main arguments against removing GST on insurance premiums? Critics argue that removing GST could lead to revenue losses and complicate the tax structure, potentially causing distortions and cascading of input taxes (Business Today).
What other measures can improve insurance penetration in India? Besides removing GST, increasing public awareness, offering subsidies, and improving the efficiency of insurance claim processes could significantly boost insurance penetration in India.
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