Big Diwali Gift for Middle Class! No GST on Health & Life Insurance Under GST 2.0?

New Delhi (The Uttam Hindu): Ahead of the festive season, the Central Government may soon bring major relief for the common man. Under the upcoming ‘GST 2.0’ reforms, the government is considering completely removing Goods and Services Tax (GST) from health and life insurance services.

Currently, insurance policies carry 18% GST on premiums, making them costly for policyholders. A special Group of Ministers (GoM) constituted by the GST Council has strongly recommended abolishing this tax. If approved in the next GST Council meeting, insurance premiums will become significantly cheaper, reducing the financial burden for crores of citizens.

What is GST 2.0?

The government is working on simplifying India’s taxation system through GST 2.0. Finance Minister Nirmala Sitharaman stated that these reforms will primarily benefit farmers, the middle class, and small businesses. Prime Minister Narendra Modi, in his Independence Day speech, had described the reforms as a “Diwali gift” for the people.

Under GST 2.0, multiple tax slabs may be simplified into just two main categories – 5% and 18%, while luxury goods like cigarettes and high-end cars could continue to attract a 40% higher tax rate.

Strong Push for Insurance Relief

The GoM, chaired by Bihar Deputy CM Samrat Choudhary, reached a broad consensus that essential services like health and life insurance should be tax-free. Experts believe that such a move will not only reduce policy premiums but also increase insurance penetration in India.

Concerns Raised by States

Some states raised concerns about whether the tax exemption benefit will directly reach customers, since insurance companies will no longer be able to claim Input Tax Credit (ITC). To address this, the GoM has urged the GST Council to design a mechanism ensuring that the relief goes entirely to policyholders.

Next Steps

The GoM will now submit its detailed report to the GST Council, which will take the final decision in its September meeting. If approved, this reform will be a huge financial relief for crores of insurance policyholders across the country.