GST Rejig On The Horizon: Health & Life Insurance May Get Tax Exemption; GoM Meets Today On Rate Rationalization

Finance Minister Nirmala Sitharaman said that the proposed GST rate rejig will ease the burden on the common man, farmers, the middle class, and MSMEs

On Thursday, the Group of Ministers (GoM) on rate rationalization, part of the Goods and Services Tax (GST) Council, will convene to discuss the Centre's proposed restructuring of indirect tax rates. 

This meeting follows Wednesday's GoM session on GST for health and life insurance, with the GoM on compensation cess currently in progress.

A panel of state ministers has proposed exempting GST on individual health and life insurance premiums, which are currently taxed at 18%, according to reports. The recommendation was made during a meeting with India’s Finance Minister Nirmala Sitharaman.

The proposal comes shortly after Prime Minister Narendra Modi announced major GST cuts to support economic growth amid trade tensions with the United States.

On August 15, Modi announced a significant overhaul of the GST structure. The Indian government decided to change the GST structure by cutting down the number of slabs to just two core rates - 5% and 18%. It is also likely to introduce a concessional rate below 1% and a steep “sin rate” of 40% for five to seven select items.

As part of this reform, the existing 12% and 28% brackets will be scrapped entirely. Nearly all goods in the 12% category are expected to shift to 5%, while about 90% of items under the 28% slab will move to 18%. Notably, the new system will not include any cess over and above the GST rates.

Healthcare Tax Exemption Proposal

Bihar’s Deputy Chief Minister Samrat Chaudhary said the panel put forward the exemption plan during the meeting in New Delhi. However, the final decision will rest with the GST Council, which is chaired by the Union Finance Minister and includes finance ministers of all states.

The council is expected to meet in September or October, ahead of Diwali.

Telangana minister Mallu Bhatti Vikramarka estimated that the move could result in a revenue loss of around ₹97 billion. Despite this, policymakers believe the exemption could provide significant relief to individuals by lowering the cost of essential insurance products.

India’s ‘Atmanirbhar’ Push

Finance Minister Nirmala Sitharaman said that the proposed GST rate rejig will ease the burden on the common man, farmers, the middle class, and micro, small, and medium enterprises (MSME).  

She described these as “next-generation GST reforms” aimed at supporting India’s Aatmanirbhar vision, while assuring a collaborative effort between the center and states for smooth implementation.

GST Rejig Impact

According to an SBI Research report, the move could lead to an annual revenue loss of about ₹85,000 crore, with a ₹45,000 crore impact expected this fiscal if implemented from October 1. 

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