Bihar Deputy Chief Minister and Convenor of GoM on GST, Samrat Choudhary, on Thursday said that the Group of Ministers has accepted Centre’s proposal to move to 5% and 18% GST rates and scrap 12% and 28% slabs. The minister added that the final call on the same will be taken by the GST council.
The GoM has suggested that life and health insurance should not be taxed under GST. The Centre has also proposed removing GST on these policies for all individuals. Choudhary has said that a clear path has been created for this exemption, which would be a major relief from the current 18% tax.
The recommendation comes after the Central Government, on August 15, put forward a major GST reform plan focusing on mainly three areas – structural changes, rate simplification, and ease of living. The proposal, shared with the GoM, suggested having only two main GST slabs – 18% as the standard rate and 5% as the merit rate, with special rates kept only for select items.
Najib Shah, former Chairman of the Central Board of Excise and Customs (CBEC), welcomed the GoM’s acceptance of this plan, calling it a “big “phenomenal” step towards simplifying the system and meeting the long-standing demand for rationalised rates, a CNBC report said. He said the GST Council is now expected to take it up and will likely move ahead with the proposal, especially since the GoM has members from both ruling and opposition states.
He also pointed out that while revenue concerns are always important, the Centre would have addressed them in discussions with the GoM and will continue to do so in the GST Council. The belief is that these changes will encourage demand, increase consumption, and eventually improve revenue. How things play out will become clearer in the coming months.
What it means for insurance?
The government’s proposal on insurance is part of a larger GST reform plan. Under this, goods and services will be taxed at only two rates : 5% and 18%, depending on whether they are considered essential or standard. The 12% and 28% slabs will be removed.
In 2023-24, the government earned about Rs 8,263 crore from GST on health insurance premiums and Rs 1,484 crore from GST on health reinsurance premiums. At present, both health and life insurance premiums are taxed at 18%. Under the new plan, this could be reduced to 5% or even zero.
While this looks like insurance premiums will get cheaper, experts in the industry warn that it may not be so simple. If GST is cut to 5% or zero, insurance companies may not be able to claim Input Tax Credit (ITC) under current rules. Without ITC, the overall costs for insurers could rise, which might end up making premiums more expensive for customers.