States fail to reach consensus on GST relief on health insurance premiums

A decision is expected to be made at the upcoming GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, scheduled for September 9 in Delhi, reported Moneycontrol.

According to two officials familiar with the discussions, various options are still being considered, including exemptions for senior citizens, partial exemptions, or reducing the tax rate to 5 percent, with or without the Input Tax Credit (ITC), the report said.

The proposal to exempt health insurance premiums from GST has ignited a debate, with states raising concerns about a potential revenue loss estimated to be between Rs 3,200 crore and Rs 4,000 crore.

However, the exact amount of revenue loss will depend on whether the Input Tax Credit (ITC) is retained, according to officials.

"There are nuances to the tax system. Some states are conscious of the revenue implications of exemption of health insurance premium from GST. Some are very conservative, while others feel that lower tax could lead to a wider coverage of health insurance. The overriding sentiment is that whatever losses are suffered due to the tax relief could be recouped by other sectors, thanks to a growing economy,” an official was quoted as saying Moneycontrol.

“If GST on health insurance is proposed at 5 percent without ITC, then the tax burden is inclusive of the 5 percent tax rate and additional tax on inputs. In such a scenario, the government will continue to levy tax on inputs.

   As a result, some revenue will accrue to the government for discharging its output liability. This policy move will also lessen revenue loss for the state exchequer,” the official said.

Currently, health insurance premiums are subject to an 18% GST, and the debate over its withdrawal has been ongoing for some time.

Shortly after Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 in the Lok Sabha, Minister for Road, Transport, and Highways Nitin Gadkari advocated for exempting health insurance from GST, citing concerns about how the 18% tax affects accessibility and growth in the sector.

The deadlock remains unresolved as states seek more data and deliberate on the most viable approach to balance consumer relief with revenue protection.