A parliamentary committee, chaired by former minister of state for finance Jayant Sinha, has recommended rationalising the Goods & Services Tax (GST) on insurance products, particularly health and term insurance. The committee noted that the current GST rate of 18% leads to a high premium burden, deterring individuals from purchasing insurance policies.
Recommendations to Reduce GST on Insurance
To make insurance more affordable, the committee suggested reducing GST rates on health insurance products, especially retail policies for senior citizens and microinsurance policies under the Pradhan Mantri Jan Arogya Yojana (PMJAY), currently up to Rs 5 lakh. Term insurance policies were also recommended for GST reduction.
Capital Requirements and On-Tap Bonds
Addressing the issue of underinsurance in India, the committee highlighted the need for significant capital infusion, estimated at Rs 40,000 to Rs 50,000 crore. It recommended that the Reserve Bank of India (RBI), on behalf of the government, issue ‘on-tap’ bonds of various maturities up to 50 years, compared to the current maximum tenure of 40 years, to meet the insurance industry’s capital requirements. The committee also proposed that the government explore earmarking a portion of long-dated securities for insurance sector subscriptions as part of their annual borrowing program.
Strengthening State-Run Insurers
The committee observed that four state-run general insurers lack adequate capital and have lagging insolvency ratios, requiring financial strengthening. It recommended implementing a strategic roadmap to improve their competitiveness and enable them to attract sufficient capital and talent for growth.
Disaster-Prone Areas and Motor Insurance
To support disaster-prone areas, the committee suggested setting up a specialised insurance business by one of the public sector general insurance companies, offering subsidised premiums. It also recommended examining the implementation of E-Challan enforcement across states for motor insurance, leveraging data integration by the Insurance Information Bureau (IIB), mPrivahan, and National Informatics Centre.
Conclusion
The committee’s recommendations aim to make insurance more accessible and affordable, addressing the high premium burden caused by the current GST rate. By proposing measures such as issuing on-tap bonds and reducing GST on specific insurance products, the committee seeks to strengthen the insurance sector and improve the financial condition of state-run insurers.
