Wait for GST reduction on life, medical health insurance gets longer as GST Council’s Fitment committee turns down proposals

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The committee of revenue officials from the Centre and States attached to GST Council has turned down proposal to lower tax rate on premium related with all form of insurance from life to health to 3rd party.

The committee, often called Fitment Committee, examines proposal for changes in rates for goods and services and accordingly recommend ‘YES’, ‘NO’ or ‘Defer’. Based on these recommendations, GST Council gives its final recommendations which is then implemented through legislative changes and sub-ordinate legislations by the Centre and States/Union Territories (with legislature).

Documents, as seen by BusinessLine, showed a proposal was placed before Fitment Committee to provide its suggestion on removal of GST on life and medical health insurance policy. Nonetheless, the committee felt “exemption or lowering of tax will result in cascading of input taxes and end in distortion of tax structure.”  Accordingly, it advisable no change for each life and medical health insurance.

Three situations

At present, for all times insurance, GST is applicable in three situations – Insurance Risk Premium, fee & delayed loan interest paid because of delay in payment of premium and interest in time, and Annuity Policies. Baseline rate for GST is eighteen per cent, though it’s 4.5 per cent on first premium and a couple of.25 per cent on second and onwards premium. Also, it’s 1.8 per cent for single premium annuity policy.

In case of medical health insurance, GST is applicable at the speed of 18 per cent on premium. There was consistent demand for reduction, but each time it has been turned down. This April, in a reply to query in Lok Sabha, Finance Minister Nirmala Sitharaman had said medical health insurance, like majority of other taxable supplies is standard rated at 18 per cent. In pre-GST regime also, medical health insurance was standard rated.

Further, insurance schemes comparable to Rashtriya Swasthya Bima Yojana (RSBY), Universal Health Insurance Scheme, Jan Argoya Bima Policy and Niramaya Health Insurance Scheme which are catering to economically weaker sections of the society and in another way abled, are already exempted. Further, healthcare services are also exempt from GST. Representations to cut back the GST on medical health insurance were placed before the GST Council in its thirty first meeting held on December 22, 2018. In its thirty seventh meeting held on September 20, 2019, GST Council didn’t make suggestion for reduction of GST, she clarified.

General micro insurance

There was a proposal to supply blanket exemption from GST to general micro insurance products. These include medical health insurance contract, any contract covering belongings comparable to hut, livestock, tools or instruments and any personal accident contract that may be on a person or group basis. Since, life micro insurance products having sum insured as much as ₹2 lakh are exempt from GST, so demand is to do the identical for such general insurance products too. The Committee felt since a few of such general micro insurance products are already exempted, so there will not be much merit in granting blanket exemption.

third party insurance for CVs

One other proposal before Fitment Committee was to exempt GST on third party insurance for industrial vehicles. At present rate is eighteen and 12 per cent. Two arguments got – category sensible share of accidents from trucks is less and no ITC for GST is claimed by majority of truck operators. After consideration, the committee opined that rate has already been lowered to 12 from 18 per cent. Further reduction will end in revenue and loss and distortion of ITC (Input Tax Credit) chain. Accordingly, the committee suggested for no change.

Published on

June 26, 2022

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