GST on Term Insurance: Hopes Dashed at 55th GST Council Meeting

The 55th GST Council meeting brought much-needed relief to the inflation-hit people as it was hoped that the 18% GST on term insurance premiums would be reduced. However, the Finance Minister decided to put it off, leaving many disappointed. This article goes into the impact of GST on term insurance, its importance, and the implications of the delayed rate cut.

Introduction

The 55th GST Council meeting had much publicity, mainly on the basis of expected cuts in the GST rate on term insurance premiums. Many expected to see an enormous reduction – from its current level of 18% – which would indeed be very much helpful in addressing the currently building inflationary pressures. However, the Finance Minister and the GoM decided to push the decision to the next meeting due to a lack of consensus among the member states. This has been quite a disappointment for many who had been looking forward to some relief from this much-hyped high GST on the basic financial product.

Term Insurance: A Much-needed Safety Net

Term insurance is an important financial product that offers a safety net for families. It provides low-cost life cover for a specified period, usually between 10 and 30 years. The primary advantage is that it is simple: if the insured dies during the term of the policy, the sum assured is paid to the nominees, and they are set for life. If the insured survives the term, no maturity benefits are payable.

Why is GST on Term Insurance a Concern?

The current 18% GST rate levied on term insurance premium heavily impacts affordability. To most people, especially in the middle-income group, it is a significant imposition and thus deters the said people from adequately providing for their families. Reduced GST rates would not only improve the accessibility of term insurance but also increase financial inclusion since it would be even more affordable to a larger majority.

The Importance of Reducing GST on Term Insurance

Increased Affordability: A lower GST rate would directly translate to reduced premiums, making term insurance more affordable for a wider range of individuals and families. This would encourage greater uptake of this essential financial safety net. The government would be able to play a vital role in enhancing the financial security of families all over the country by making term insurance more accessible.

It would become particularly relevant at the time of such events and economic uncertainties. Boost to Insurance Penetration: It may result in boosting the penetration of term insurance in India, where the level of insurance coverage remains low compared to the developed economies. Reduced Financial Stress: High GST rates add significant financial stress to individuals and families. Reducing these rates will provide much-needed relief so that individuals can allocate their resources more effectively.

The Way Forward

The deferral of the GST rate reduction decision has undoubtedly been a set back. However, the government must make this its priority and ensure that this issue is resolved at the next GST Council meeting. The reduction of GST on term insurance premiums is not simply a tax relief but also an important step toward more financial inclusion and ensuring millions of Indian families’ well-being.

Disclaimer: The article shall be used for information only and as such, should not be qualified or construed as financial or investment advice. For consultation on your particular insurance need, please see a competent financial 1 advisor.

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