GST Council's Potential Removal of 18% Tax on Term Life Insurance Premiums

GST Council Meeting and Its Potential Impact on Term Life Insurance

The upcoming Goods and Services Tax (GST) Council meeting, scheduled for September 9, 2024, is expected to address the removal of the 18% GST on premiums paid towards term life insurance policies. This potential policy change has been a long-standing demand of stakeholders within the insurance industry, who argue that the additional tax significantly increases the financial burden on policyholders.

Term insurance policies are widely recognized for providing substantial coverage at a relatively low cost, offering financial security to beneficiaries in the event of the policyholder's death. However, the 18% GST on these premiums has been a point of contention, as it adds to the cost of a product designed purely for protection rather than investment. Experts like Harsh Bhuta of Bhuta Shah and Co. LLP suggest that the GST Council may favor the removal of this tax, aligning with the intent of the GST law to exclude non-income-generating instruments from taxation.

Narendra Bharindwal, Vice President of the Insurance Brokers Association of India (IBAI), emphasizes the role of term insurance in mitigating financial challenges for families during vulnerable moments. Removing or reducing the GST on these premiums could make term insurance more accessible, potentially increasing insurance penetration across the country.

While the focus is primarily on term insurance, it is unlikely that the GST Council will consider removing the tax on other life insurance products like Unit Linked Insurance Plans (ULIPs) or investment-linked policies, as these offer a return on investment in addition to life protection.

In a letter dated July 28, 2024, Union Minister Nitin Gadkari also urged Finance Minister Nirmala Sitharaman to roll back the GST on life and health insurance premiums, arguing that taxing these essential services contradicts the intent of the GST law. The insurance industry hopes that the upcoming GST Council meeting will result in favorable decisions that lower the cost of these crucial financial products.

As the GST Council deliberates on this significant issue, policyholders and industry stakeholders alike await a decision that could alleviate financial pressures and promote broader access to essential insurance coverage.

• Focus on removing the 18% GST on term life insurance premiums
• GST Council Meeting Set for September 9, 2024
• Term Insurance Recognized as Key for Financial Security
• Other life insurance products likely to retain GST due to their investment components
• Industry leaders advocate for reduced costs to increase insurance penetration

This development is closely watched, with expectations that the decision will not only impact the insurance sector but also provide much-needed relief to policyholders across India.