India's Low Insurance Penetration: The Role of 18% GST

Only 4% of India's population has insurance, far below the global average of 7%. With 18% GST, insurance is becoming a luxury rather than a necessity.

The 18% Goods and Services Tax (GST) on health and term insurance premiums continues to be a concern, with many experts and citizens arguing that the high tax makes insurance less affordable and harder to access, particularly in a country with already low insurance coverage.

In India, only about 4% of the population has insurance, which is far below the global average of 7%. The cost of premiums is already high, and adding an 18% tax only makes it worse. This has led to complaints that insurance is becoming a luxury rather than a necessity, especially in a country with no comprehensive social security system and poor government-run healthcare.

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18% #GST on health & term #insurance premiums remains a concern! Experts argue it makes insurance less affordable & harder to access in India, where insurance penetration is only 4%. #medindia

While the tax has been criticized by many, including members of the government and opposition, the GST Council has not yet decided to lower the tax rate.

Tax expert Sandeep Agrawal argued that reducing the GST would directly lower the cost of premiums, making insurance more affordable for everyone. This could encourage more people to buy insurance and increase coverage across the country.

Other countries like the US, UK, and South Africa have much lower taxes on insurance premiums, contributing to higher rates of insurance coverage. In the UK, life insurance premiums are not taxed, and in the US, life insurance benefits are tax-free. These countries have insurance penetration rates of around 11%, far higher than India’s.

Health Insurance
Health insurance has emerged as one of the fastest growing segments in the non-life insurance industry with 30% growth in 2010-11 with annual premium collections being over Rs 6,000 crores.

Union Minister Nitin Gadkari has also expressed concern and wrote to the Finance Minister that taxing life insurance premiums is like taxing the uncertainties of life itself. He believes that people who pay for insurance to protect their families should not be taxed for securing that protection.

Experts like RC Sankhla, former Chief Commissioner of Customs and GST, believe that lowering the GST on insurance would create a more competitive insurance market, improve services, and make insurance more accessible for all, especially for senior citizens facing higher premiums.

Health Insurance In India - An Overview
Health insurance has emerged one of the fastest growing segments in the non-life insurance industry with 30% growth in 2010-11 with annual premium collections being over Rs 6,000 crores.

GST on insurance premiums is classified as a service due to the risk coverage it provides, experts agree that the current 18% rate is too high. They argue that reducing the tax would make insurance more affordable, increase insurance uptake, and improve financial security for many people.

With discussions about lowering the GST rate on insurance expected to continue in upcoming meetings, many hope that the government will take action soon to make insurance more affordable for everyone.