11th September 2024 (9 Topics)
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Soothing Salvo
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Context
The Goods and Services Tax (GST) Council has convened to address growing criticism regarding the 18% GST on insurance premiums. This meeting follows mounting pressure to reconsider the tax levy on life and health insurance policies.
Recent Developments and Reactions
- Formation of New Group of Ministers: The GST Council has decided to form a new Group of Ministers to review the GST rates on life and health insurance. This group is tasked with recommending potential tax changes, with the Council expected to reconvene in November to discuss the report.
- Political Pressure and Criticism: There have been opposition to the GST on insurance premiums. The tax has been equated to taxing life’s uncertainties, reflecting broader discontent within the government and its allies.
- Revenue Impact: GST revenues from health insurance premiums increased by over 54% from 2021-22 to 2023-24, reaching Rs 8,262 crore last year. This significant revenue boost has fueled calls for reconsideration of the levy amidst concerns about the financial burden on consumers.
Considerations for Future Policy
- Need for Comprehensive Review: There is a call for a nuanced approach in reducing GST on insurance. Any reduction should be comprehensive and not selective, ensuring real cuts in premiums, especially given the rising costs of health insurance and the strain on public health systems.
- Focus on Pure Term Insurance: For life insurance, it is suggested that relief should primarily benefit pure term policies, which provide essential coverage without the investment component found in many market-linked products. This approach aims to support families during financial shocks.
- Comparative Taxation Rationale: The argument is made that if shared-seat helicopter services attract only 5% GST, insurance policies, which are crucial for financial security, should also receive more favorable tax treatment to alleviate consumer costs.
Practice Question:
Q. Evaluate the implications of the GST levy on insurance premiums for consumers and the insurance sector. Discuss the potential benefits and drawbacks of revising the GST rates on life and health insurance policies, considering the current economic and public health context.
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