IRDAI Chief: GST Cut Puts Insurance on Par with Food in Fiscal Policy

IRDAI Chief: GST Cut Puts Insurance on Par with Food in Fiscal Policy

Issue: To analyze the policy signal sent by the Central Government’s decision to exempt individual health and life insurance premiums from Goods and Services Tax (GST) as part of the broader tax rationalization efforts.

Facts:

• The government recently reduced the GST on individual health and term life insurance products to zero. These products previously attracted an 18% GST rate.
• IRDAI Chairman Ajay Seth made a public statement at a summit regarding the significance of this fiscal move.

Decision:

IRDAI Chairman Ajay Seth stated that the government’s decision to set the GST rate on insurance products to zero places the sector “on par with food items” in policy significance, signaling a fundamental, long-term commitment to deepen coverage and affordability.

Key TakeDowns:

• Highest Policy Priority: By applying a zero tax rate, the government is signalling a high priority for insurance protection (similar to essential food items) as part of its fiscal policy for affordability and inclusion.
• Call for Cost Reduction: Seth urged the insurance industry to view this as a “huge opportunity” and shift toward a moderate-cost model to target the bottom of the pyramid, noting that the industry remains a high-cost sector.
• Distribution Reforms: The IRDAI Chief highlighted distribution reforms as the next major priority for the regulator, emphasizing that both reach and affordability must improve for the sector to achieve its growth potential, especially as most growth is coming from Tier-2 and Tier-3 cities.
• Stability Issue: Responding to industry concerns, Seth suggested that maintaining the pre-reform status quo would only preserve a “low equilibrium” and hinder the sector’s long-term growth.