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No tax reduction on life, health insurance

Despite the low penetration of life and health insurance in the country and the heightened medical concerns driven by the pandemic, the GST council is not likely to provide tax relief to those seeking life or medical insurance cover.India Today found out that the fitment committee, a panel of central and state government officials working for the GST Council, rejected a proposal to lower the tax rate on premiums paid on a slew of insurance policies from life to health to third parties.

The agenda documents accessed from the GST council show that the fitment committee recommended “no change” to the request to remove the GST on life and health insurance. There is an 18% GST imposed on life and health insurance currently.

The GST at present is of three types. The first is the GST on Insurance Risk premium, the second is GST is collected on late fee and delayed loan interest paid due to a delay in payment of premium and interest on time. Third is the GST imposed on annuity policies which don’t contain any risk premium. GST is not collected on investment in banks, post office savings schemes, etc.

The Baseline rate for GST for life insurance is 18 per cent, but for the first premium it is 4.5 per cent and for second and onward premiums, it is 2.25 per cent. For single premium policies, it is only 1.8 per cent.

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