A committee of high-ranking ministers (GoM) has started talking about a plan that might help millions of Indian policyholders a lot: doing rid of the 18% Goods and Services Tax (GST) that is now added to life and health insurance premiums. This possible change is a big element of the government’s bigger plan to “next-generation” the GST. The goal is to make the tax system easier to understand and less of a strain on people’s finances.
People who are close to the talks say that the Centre’s approach is simple: don’t charge GST on private insurance policies at all. The goal of this move is to make these important financial products more accessible, which should lead to more people using them in a country where insurance use is still quite low.
Samrat Choudhary, the Deputy Chief Minister of Bihar and a member of the GoM, said that the suggestion has been a major topic of conversation. Many states have said they favor the idea, but some are worried about how much money it may cost. The GST Council will make the final decision, though. It will look over the GoM’s findings and suggestions.
This action comes after Finance Minister Nirmala Sitharaman gave the GoMs a full plan for changing the GST. The suggested changes would turn the current four-tier tax system (5%, 12%, 18%, and 28%) into a two-slab system with rates of 5% and 18%. Some people have also suggested a specific, higher rate of 40% for a select number of items, which are also called “sin goods.”
Some specialists in the field have warned that not having to pay insurance premiums could have a complicated side effect, even if it would be a big help for policyholders. If insurance services are completely exempt from GST, businesses may not be able to claim Input Tax Credit (ITC) on the taxes they spend on their own goods and services. This could make their costs of doing business go up. This might then be passed on to the customer, which would take away some of the benefits that were meant to happen. The GST Council will need to think about this thoroughly to make sure that the tax drop really helps the consumer.
The GoMs are likely to keep talking about things, and the final recommendations will be given to the GST Council for a final decision in the next few weeks. If it gets the go-ahead, this initiative might be a big step toward making Indian households more financially secure.