Taxing insurance premiums at 18 per cent at a time when insurance penetration in the country is merely 4.2 per cent is, perhaps, not the best way forward. Instead, the goods and service tax (GST) on life, health, and term premiums should either be reduced to 5 per cent or a “nil” rate so as to cover the maximum population of the country, SBI research said in its report.
“In India the insurance penetration is low; the introduction of tax in the realm of insurance may not represent the best step forward. After Covid19 pandemic’s effect on the economy, it seems this is the right time to reduce the GST rate to 5 per cent or “Nil” rate on Life/Health/Term insurance to cover the maximum population of India,” the research note said.
Twenty years after India’s insurance sector was opened up, unshackling the control of state-owned companies, as many as 50 private players have set up shop. But India’s insurance penetration needle has moved little. The overall insurance penetration has increased from 2.71 per cent in 2001-02 to just 4.20 per cent as of 2020-21. Life insurance penetration has increased from 2.15 per cent to 3.2 per cent during the period, while non-life insurance penetration has moved up by just 44 basis points to stand at 1 per cent as of 2020-21.
The insurance industry has been advocating a reduction in GST rates on premiums for a very long time, and more so after the Coronavirus (Covid-19) pandemic. While there have been several calls from the industry to the government for a relook at GST on premiums, there has not been much development on this front.