The opposition, particularly the INDIA bloc, has organised protests in Parliament, demanding the removal of the GST on health and life insurance.
Published Aug 08, 2024 | 4:00 PM ⚊ Updated Aug 08, 2024 | 6:27 PM
MPs outside parliament protesting against 18% GST.
The imposition of 18 percent Goods and Services Tax (GST) on health and life insurance premiums has sparked significant political protests in India as over 250 Members of Parliament (MPs) have participated in demonstrations against the tax.
The issue gained traction following a letter from Union Minister Nitin Gadkari to Finance Minister Nirmala Sitharaman, urging the government to withdraw the tax. Gadkari argued that the tax burdens the middle class and hinders the growth of the insurance sector.
The opposition, particularly the INDIA bloc, has organised protests in Parliament, demanding the removal of the GST on health and life insurance. Congress leader Rahul Gandhi joined these protests, highlighting the adverse effects of the tax on economically vulnerable individuals.
In response, the government stated in Parliament that the GST on health and life insurance has generated approximately ₹21,256 crore over the past three years, with ₹8,263 crore collected in the current financial year alone.
This substantial revenue has led to resistance against calls for a reduction or removal of the tax, as it significantly contributes to the government’s finances.
18% GST on Health Insurance premium is a national issue now. Who thought more than 250 MPs will be protesting on GST on health insurance premium. pic.twitter.com/T9YStWO0MP
— Anurag Shah (@anuragshah_) August 6, 2024
Nitin Gadkari Letter. (Supplied)
The imposition of 18 percent GST on health and life insurance premiums has crucial implications for the affordability and accessibility of insurance in India:
Increased costs for the middle class and senior citizens
The tax makes health insurance premiums more expensive, making it harder for the middle class and especially senior citizens to afford coverage. This is especially problematic given the already low insurance penetration in India compared to global standards.
Impact on insurance affordability
The 18% GST on health and life insurance premiums has led to substantial hikes in insurance costs. This increase, combined with rising medical inflation, has made health insurance less affordable for many citizens, particularly affecting the renewal rates of policies.
Hindrance to growth of the health insurance segment
The high GST rate is proving to be a deterrent to the growth of the health insurance segment, which is socially necessary. It makes health insurance less accessible to the population, affecting the overall health security of citizens.
Concerns from the insurance industry
Insurance industry representatives have expressed concerns that the high GST rate may deter potential policyholders and reduce overall insurance penetration in India, which currently lags behind global standards. The Confederation of General Insurance Agents’ Associations of India has noted that the GST on insurance is among the highest in the world, urging for a rationalization of the tax rate to support the goal of “Insurance for All by 2047.”
Perceived unfairness
Imposing tax on health insurance premiums is seen as unfairly taxing people who are trying to protect themselves and their families from the financial risks of illness and medical emergencies.
Imbalance between life and health Insurance
Currently, 75 percent of insurance policies are life insurance while only 25 percent are health insurance. The high GST on health insurance exacerbates this imbalance and makes health insurance less attractive compared to life insurance.
While the GST Council sets tax rates, the government can still intervene and push for a reduction in the GST on health insurance premiums. The opposition views the government’s reliance on the GST Council as a “flawed argument” and continues to advocate for a tax reduction.
Several MPs, including those from the Trinamool Congress, have criticized the GST as “anti-people,” arguing that it disproportionately affects lower-income individuals who rely on health insurance for financial security. They have called for immediate action from the government to alleviate this burden.
The opposition’s stance reflects a growing concern about the accessibility of health insurance in India, where insurance penetration is low compared to global standards. This situation has prompted calls for a reevaluation of the tax structure to promote better access to health services.
The ongoing protests and discussions in Parliament indicate that the issue of GST on health and life insurance premiums is likely to remain a contentious topic in Indian politics, as various stakeholders advocate for changes to the current tax regime.
Finance Minister Nirmala Sitharaman has defended the imposition of the tax, clarifying that there has always been a tax on medical insurance, even before the introduction of GST. Previously, a Service Tax was levied on medical insurance, so the GST is not a new tax but a continuation of existing taxation across all states.
In Parliament, Sitharaman criticized the protesters, questioning whether they had discussed the removal of this tax within their own states or raised the issue with their state Finance Ministers to be brought up in the GST Council, where states hold a two-thirds majority. She accused the protesters of double standards and theatrics, noting that they chose to demonstrate at the national level without addressing the issue locally.
Sitharaman also addressed recent protests and comments based on a misleading news report that claimed the Centre had collected ₹ 24,529 crores from health insurance premiums alone. She clarified that the GST rate of 18 percent on health insurance includes 9 percent Central GST (CGST) and 9 percent State GST (SGST).
She emphasised that of the total ₹24,529 crores collected from health insurance in the past three years, half (₹12,264 crores) went directly to the states as SGST.
Additionally, approximately 41 percent of the Centre’s share of GST collection on health insurance is devolved back to the states according to the Finance Commission’s formula for tax devolution.
Wrongful protests have happened recently, and comments have been passed on the basis of a news report which suggested that the ‘Centre has pocketed Rs. 24,529 crores of health insurance premiums alone’. This is incorrect and highly misleading.
The GST rate of 18% on Health…
— Nirmala Sitharaman Office (@nsitharamanoffc) August 7, 2024
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