IRDAI seeks GST rate cut from 18% to 5% on life and health insurance premiums

Life and health insurance premiums could soon attract lower GST to make them attractive for customers, if Insurance Regulatory and Development Authority of India (IRDAI) has its way.

To help the insurance sector provide basic financial protection to the people, Insurance Regulatory and Development Authority of India (IRDAI) has approached the Finance Ministry again with a request to cut GST rates on life and health insurance premiums.

The regulator pointed out the need has risen as people have realised the importance to having cover for life and health insurance amid the pandemic, which is why both products need to be made more affordable, sources told CNBC-TV18.

"Despite restrictions in face-to-face interaction due to the pandemic, the insurance business has performed beyond expectations, where digital platforms have made it easier for people to obtain insurance… understanding the need for giving impetus to the insurance sector for providing financial protection during the time of distress, the IRDAI chairman has suggested for considering lowering GST on life and health insurance premiums to 5 percent from the current 18 percent," a source said, who didn't wish to be identified.

Nonetheless, this is not the first time that IRDAI has moved the proposal for the government's consideration. Time and again IRDAI has been pitching for a rate cut, once it had sought a reduction to 12 percent and once it had proposed that it be reduced to 5 percent, but to no avail.

It is not an easy task to get a rate change passed by the GST Council, as any such reduction needs to cross several milestones for it to reach the GST Council for a final acceptance.

For a proposal to be approved, recommendations or suggestions are first given to the GST Council nominated fitment committee, which has representatives from both sides – Centre and the states. The Centre-state officers led fitment committee then takes the proposal through detailed deliberation and after lengthy discussions, it makes final recommendations to the GST Council.

The GST Council then goes through the recommendations of the fitment committee and decides on approving it or not.

The GST Council's 42nd meet is scheduled for September 19, where multiple issues are expected to be looked into, however, a formal agenda is yet to be finalised. Although, sources did not confirm whether the proposal is part of the September 19 meeting, the sector would be keenly watching if it makes it to the agenda in this meet or the next, and whether it gets struck down yet again or is given the green signal.