The insurance sector has long been demanding, especially in the wake of heightened medical concerns during and after the pandemic, the removal of GST on health and term insurance or at least a lower rate less than 18 percent, which experts feel are too high.

Goods and Services Tax (GST) on health and term insurance is currently being charged at a rate of 18 percent, which is one of the main reasons behind the low penetration of health insurance in the country.

The insurance sector has long been demanding, especially in the wake of heightened medical concerns during and after the pandemic, the removal of GST on health and term insurance or at least a lower rate less than 18 percent, which experts feel are too high.

Insurers are of the view that if the government abolishes the 18 percent GST on health insurance policies, it will encourage more people to avail insurance as a measure of social security. As there is a very low penetration of health and life insurance in the country due to high premiums, most Indians avoid buying policies and rather pay for medical services from their own pocket.

Last year, the Confederation of General Insurance Agents’ Associations of India, an umbrella body of non-life insurance agents, nudged the government to make at least a differentiation between policies on commercial lines (availed by industry, commerce) and policies on personal lines, availed by individuals. The premium paid for policies catering to industry and commerce gets the input tax credit. But for individuals who avail health, personal accident, household security (fire, theft etc) policies, the premium paid and the high rate of GST at 18 percent is an expense that drains limited income.

GST of 18 percent is being charged on term policies. So, if your annual premium for a term plan is Rs 5,000, you are paying Rs 900 towards GST. If you have opted for an add-on such as an accidental death benefit (for additional payout in case of death due to an accident), you will have to pay GST of 18 percent on the additional premium charged for the rider.