Saturday would be crucial for Goods & Services Tax (GST) as two Groups of Ministers (GoMs) under the convenorship of Bihar’s Deputy Chief Minister Samrat Chaudhary will meet to discuss rate on insurance premium and overall rates.

The GoM on insurance with 12 members is meeting for the first time. Since it has to submit its report by October 30, the Saturday meeting is likely to come out with concrete recommendations. The committee has been asked to examine and review the present tax structure of GST on life and medical insurance. It has to suggest GST rates on health / medical insurance including individual, group, family floater and other medical cover for various categories like senior citizens, middle class, persons with mental illness, etc.

It has also been asked to suggest rate on life insurance including term insurance, life insurance with investment plans, whether individual or group along with re-insurance. As things stand, the GST rate on premia for health insurance, term insurance plans and unit-linked insurance plans, attract 18 per cent GST. On endowment plans, the GST is applied differently. While it is 4.5 per cent for premium paid during the first year, it is 2.25 per cent from the second year. For life insurance in the form of single premium annuity policies, the GST rate is 1.8 per cent. Rates are the same for all age groups and can be reviewed based on the recommendation of the GST Council.

The GoM on insurance includes Ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Goa, Gujarat, Meghalaya, Punjab, Tamil Nadu and Telangana.

The issue of GST on health insurance has become contentious after a Parliamentary question revealed that GST collection from health insurance premium reached over ₹21,000 crore in three years (FY22 to FY24). This created an uproar in Parliament during the debate on Budget. Finance Minister Nirmala Sitharaman said that States receive almost three-fourth  of the revenue collected through GST on insurance. She also said the Opposition parties should address their concerns on the issue to Finance Ministers of respective States where they are in power.

Rate Rationalisation

A six-member GoM on rate rationalisation will also meet on Saturday. Though there is no timeline fixed for the committee to submit its report, it is likely to consider item wise rates and make suggestions in parts. The issue of slab restructuring is also before the GoM, but any concrete suggestions about slab rejig is very unlikely as almost all States are in favour of continuing with the same structure.

As on date, there are four key rates – 5, 12, 18 and 28 per cent besides special rates such as 0.25 per cent (rough diamond), 1 per cent (affordable housing) and 3 per cent (gold). Now the expectation is that the group would discuss pruning the 12 per cent slab, bringing more items into the 5 per cent bracket, including rationalising taxes on medical and pharma-related items, bi-cycles and bottled water. It may also discuss the possibility of merger of 12 and 18 per cent slabs.

The six-member GoM also includes Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Services Minister Gajendra Singh, Karnataka Revenue Minister Krishna Byre Gowda, West Bengal Finance Minister Chandrima Bhattacharya and Kerala Finance Minister K N Balagopal.

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