Nitin Gadkari has formally requested Finance Minister Nirmala Sitharaman to consider the withdrawal of Goods and Services Tax (GST) on premiums paid for life and medical insurance. This proposal aims to reduce the tax burden on insurers and potentially increase the demand for these essential insurance products in India, the world’s most populous country.
Concerns Raised by Gadkari
In a letter addressed to Finance Minister Sitharaman on behalf of the Nagpur LIC union, Gadkari expressed concerns about the indirect tax on life insurance premiums. He described the GST as a tax on the uncertainties of life, arguing that it penalizes individuals who seek to protect their families through insurance. Gadkari emphasized that the 18% GST on medical insurance premiums is a significant barrier to the growth of this crucial sector, which serves a socially necessary role.
Current Insurance Market Dynamics
Insurance and pension fund assets in India account for 19% and 5% of GDP, respectively. In comparison, the figures are much higher in the USA and the UK, indicating substantial growth potential in India. The Economic Survey predicts that insurance penetration as a share of GDP will increase from 3.8% in FY23 to 4.3% by FY35. Additionally, life insurance premiums are expected to grow at an annual rate of 6.7% from 2024 to 2028 due to rising demand for term life coverage, a youthful demographic, and advancements in Insurtech.
Union’s Additional Concerns
Gadkari’s letter also highlighted other issues raised by the union, including the differential treatment of savings through life insurance, the re-introduction of tax deductions for health insurance premiums, and the consolidation of public and sector general insurance companies. He urged Sitharaman to address these concerns on a priority basis, noting that the current GST rules pose difficulties for senior citizens.
Recommendations from Parliamentary Committee
A parliamentary committee, led by former Minister of State for Finance Jayant Sinha, has also recommended a review of GST rates on insurance products, particularly health and term insurance. The committee suggested that the Reserve Bank of India issue ‘on-tap’ bonds to meet the capital requirements of the insurance industry, which are estimated to be between Rs 40,000 to 50,000 crore. The committee observed that the high GST rate significantly increases premium costs, acting as a deterrent to purchasing insurance policies. It recommended reducing GST rates for health insurance products, especially for senior citizens and microinsurance policies, to make insurance more affordable.
Very good and correct idea suggested, decision should also be taken soon.
Very good decision Sir