Parliamentary Committee on Finance recommends lowering GST on insurance products

The Indian insurance sector has witnessed robust growth in recent years, yet it grapples with challenges such as low insurance penetration. The parliamentary committee on finance recently engaged with industry officials, representatives from the Insurance Regulatory and Development Authority of India (IRDAI), and the Ministry of Finance to explore ways to fortify the insurance landscape in the country.

One of the committee's notable recommendations revolves around rationalising the Goods and Services Tax (GST) rate on insurance products. Currently set at 18%, the committee proposes specific attention to health insurance products, especially retail policies for senior citizens and micro-insurance policies. By adjusting the tax rate on these products, the committee aims to make insurance more accessible to a wider demographic.

The committee also emphasises the need to revisit the minimum capital requirement for companies entering the insurance sector, currently set at ₹100 crore. Advocating for the rationalisation of this threshold, the committee suggests that a lower capital requirement would encourage smaller niche players to enter the market. This, they argue, would lead to a more diverse range of insurance offerings and better coverage across different regions of the country.

In a move to simplify regulatory processes, the committee proposes the introduction of a composite license for insurance companies. This calls for amendments to the Insurance Act to facilitate a streamlined licensing arrangement. The finance ministry endorsed this idea, suggesting that composite licensing could significantly boost the insurance sector.

The committee extensively deliberated on the Ayushman Bharat scheme and suggested that allowing the "missing middle" to participate could enhance its effectiveness for a larger section of the Indian population.

The committee also advocated for a roadmap to strengthen the four public-sector insurance companies. Among the options considered was disinvestment, seen as a strategic move to infuse capital and enhance the competitiveness of these entities.

Drawing inspiration from the Reserve Bank of India (RBI), the committee also recommended the creation of an ombudsman within IRDAI to address consumer grievances.