Health policies up to 5 lakh to be tax-free; GST on elders' health insurance to go?

The specially-constituted Group of Ministers (GoM) has recommended removing GST on certain insurance premiums and reducing taxes on goods like packaged water and bicycles to benefit the public'

A senior Government official confirmed this to the news agency PTI on Saturday.

The GoM proposed exempting term life insurance and health insurance premiums for senior citizens from GST. Individuals with health coverage up to ₹5 lakh will also see premiums become tax-free. However, an 18% GST will still apply to health policies with coverage over ₹5 lakh, the report added.

In a separate meeting, the GoM on GST rate rationalisation discussed revising tax rates for everyday goods, including bicycles, exercise notebooks, wrist watches, and shoes. A final decision on these changes will be taken by the GST Council, chaired by the Union Finance Minister, during its meeting next month.

“Every GoM member wants to give relief to people. Special focus will be on senior citizens,” said Bihar Deputy Chief Minister Samrat Chaudhary, who leads the GoM on health and insurance, as quoted by PTI.

Mr Chaudhary noted that the panel will submit a report to the GST Council, which will have the final say. This was the first meeting of the 13-member GoM set up in September to examine insurance-related tax issues.

Bicycles, watches, notebooks

If the recommendations are accepted:

--GST on packaged water (20 liters and above) will be reduced from 18% to 5%.

--Bicycles costing below ₹10,000 will be taxed at 5% instead of 12%.

--Exercise notebooks will also see a drop to 5% from the current 12%.

--GST on wristwatches priced over ₹25,000 will increase from 18% to 28%.

--Shoes priced at more than ₹15,000 will attract 28% GST, up from 18%.

The GoM also discussed raising taxes on luxury items such as aerated beverages to offset revenue losses caused by lowering taxes on essential goods.

The GoM estimates the tax adjustments could generate ₹22,000 crore in additional revenue. This will help compensate for losses from insurance premium exemptions.

In 2023-24, the government collected ₹8,263 crore from GST on health insurance premiums and ₹1,484 crore from health reinsurance.

The GST Council currently follows a four-tier structure, with tax rates of 5%, 12%, 18%, and 28%. Essential items are taxed at lower slabs, while luxury goods are taxed higher, sometimes with an added cess.

The average GST collection has fallen below the revenue-neutral rate of 15.3%, prompting discussions on rationalising the tax structure to increase government revenue.

The GoM will meet again before submitting its final report to the GST Council by end-October.

(By arrangement with livemint.com)