GoM discusses Centre’s proposal to scrap GST levy on health, life insurance for individuals; Most members want tax to be nil
21-Aug-2025
A Group of Ministers (GoM) on life and health insurance deliberated on the Centre’s proposal to remove levy of Goods and Services Tax (GST) on life and health insurance premiums for individuals from the current rate of 18 per cent, Bihar’s Deputy Chief Minister and GoM Convenor Samrat Choudhary said after the meeting Wednesday. State ministers said that all GoM members agreed on the proposal, even as some expressed concerns on whether the benefits from the exemption on insurance will get passed on to the consumers.
The proposal will be presented in the next GST Council meeting, which is likely to be held in the first week of September, state government officials said.
Ministers from various states converged in the capital Wednesday to discuss the Centre’s proposal to overhaul GST structure. Finance Minister Nirmala Sitharaman addressed the Group of Ministers (GoM) constituted by the GST Council on compensation cess, health & life insurance, and rate rationalisation on the proposed next-generation reforms. During the meeting, the Union Finance Minister emphasised that the proposal by the Central government is with a vision to usher in the next-generation of GST reforms in India’s journey towards becoming Atmanirbhar Bharat, a post by Ministry of Finance on X stated.
All members discussed the proposal to make the GST rate nil on health and life insurance, said Choudhary. “All members agreed with the proposal, but some states gave a (differing) view. We want GST on insurance to be zero. The proposal will now go to the GST Council,” he said.
While some states raised concerns about the possibility of benefits from GST cuts on insurance being pocketed by companies, others asked about the impact on state government health insurance schemes.
“Serious deliberations have taken place on life insurance and health insurance (for individuals) also. We all welcomed it and in fact from the state of Telangana we wanted that insurance GST to be brought down to zero,” said Telangana Deputy Chief Minister and Finance Minister Mallu Bhatti Vikramarka. However, Telangana emphasised that “the premium from whatever GST you are reducing, has to go down for policyholders, not to the companies. Some mechanism you have to evolve to see to it that whatever we are trying to do should go to the people,” Vikramarka added.
GST exemption for insurance for individuals is expected to result in an annual revenue loss of around Rs 9,700 crore, he added. A top state government official told The Indian Express that for smaller states, the annual revenue loss from insurance exemption could be around Rs 475-500 crore.
A separate meeting was also held by the GoM on compensation cess, chaired by Minister of State for Finance Pankaj Chaudhary. The panel discussed the way ahead once the levy ends on October 30, but no alternative mechanism was suggested.
Punjab’s Finance Minister Harpal Singh Cheema pointed out the revenue loss for his state in absence of cess levy. “Punjab is losing Rs 21,000 crore every year post GST roll out. The GoM meeting on Wednesday took views of all the states. The GoM has not yet proposed any alternative mechanism when compensation cess ends. We were informed today that the back-to-back loan will be repaid by October, post which compensation cess will not be levied,” he said.
The Finance Minister’s address to members of three GoMs, who are state ministers, was on the lines of the announcement made by the Prime Minister Narendra Modi on Independence Day. Apart from streamlining the multiple slabs under GST into a two-pillar structure of 5 per cent and 18 per cent, the proposal intends to levy a special rate of 40 per cent on sin and demerit goods.
State ministers are learnt to have been informed about the proposal’s details and revenue implications and asked to debate the proposal threadbare before reaching a conclusion.
State ministers who participated in the meeting said the move towards GST rate rationalisation will result in savings for the public and the companies and those could then get invested elsewhere. The rate rationalisation process will be discussed in detail on Thursday, while Wednesday’s meeting focused on rate proposals related to life and health insurance, they said. All GST rate rationalisation proposals will be submitted to the GST Council, said Vikramarka. On measures to avoid profiteering by companies, he said the Council will deliberate once the proposals are tabled before it. Profiteering entails the non-reduction in price of goods and services despite a cut in corresponding tax rates. “The debate is going on. Overall there will be GST reduction. It will result in savings for the public and companies. The moment you save money, you are going to invest it somewhere, it’s going to have a multiplier effect,” Gajendra Singh, Minister of Medical Health and Services, Rajasthan said.
Singh said states’ losses are not going to be much. “There will be a few minor issues. These are all teething problems,” he said. For his state Rajasthan, Singh gave the example of the proposed duty cut for the solar energy sector, saying there might be some loss but it’ll boost the industry internationally.
“Today’s topic was life insurance and medical health insurance. Rate rationalisation discussions will happen tomorrow (Thursday). FM got the ball rolling and it will unfold. Tomorrow is the main day,” Singh said.
The proposal to remove the GST levy on insurance for individuals will help make it more affordable, improving financial security for millions and accelerating insurance penetration in India. There is a worry, however, among insurance companies that they will lose the input tax credit (ITC) claim if the GST is completely abolished, which will push up operating costs for insurers.
Source : The Indian Express
