Standing Committee on Finance recommends reducing GST rate on insurance products, presents report in Parliament

The current 18% GST rate on insurance products, especially term and health insurance, has been recommended to be lowered by the Standing Committee on Finance. The Jayant Sinha-led committee said in a report presented to Parliament on Tuesday that they think a high GST rate drives up the cost of insurance policies and deters people from buying them.

The Committee has recommended that health insurance products, particularly retail insurance and microinsurance policies for senior citizens (up to the PMJAY limit, which is currently Rs 5 lakh), as well as term policies, be made more reasonably priced. It is possible to lower the applicable GST rates. According to the Committee, the insurance industry in India has shown dynamic growth in recent years, with total insurance premiums increasing following the reforms undertaken by the present government but the penetration and density of Indian insurance products is still low.

India's insurance sector still has a ways to go before it can catch up to the insurance sectors of advanced country economies; in 2020, the country's share of the global insurance market was approximately 2%. India is ranked tenth in the world insurance business by Swiss Re data, with a 1.85% market share in 2021 (up from 1.78 per cent in 2020).

In 2021, the total insurance premiums in India increased by 13.46 per cent (7.8% real growth adjusted for inflation), compared to a global increase of 9.04 (3.4 per cent real growth adjusted for inflation) in the same period. India came in ninth place globally in the life insurance industry in 2021. India is ranked fourteenth in the world for non-life insurance business.

Insurance penetration and density are two metrics that are used to assess the level of development of the insurance sector in a country. According to the committee, "There is a need to make various insurance products profitable for the people and not just life insurance." The Committee recommended that a campaign should be launched to make consumers aware of the different types of insurance products, claims paid during COVID outbreaks in the country, insurance claims during floods and claims related to various events. This awareness campaign should be jointly launched by insurance companies and IRDAI and should include life, health and general insurance products.