The Union Finance Minister Nirmala Sitharaman chaired the 55th meeting of the GST Council today (21st December 2024) at Jaisalmer, Rajasthan. The council states that the deputy chief minister of Bihar, who serves as the chair of the GOM on health insurance, needs more time, and until then, the GST provisions pertaining to health insurance will remain unchanged. The Union Minister of State for Finance M.P.P. Chaudhary with newly appointed Revenue Secretary, Ajay Seth also participated in the meeting.
A number of reasons may account for the postponement or further deliberation if the Insurance Regulatory and Development Authority of India (IRDAI) has not yet offered its opinion on a given issue. IRDAI’s participation in decisions usually concerns matters that affect the insurance industry, like systemic risks, policyholder rights, or product rules.
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IRDAI regulates and oversees the insurance industry to ensure compliance with laws and safeguard policyholder interests. Its decisions can significantly influence industry practices. Any regulatory changes or new policies affect millions of policyholders. IRDAI’s role is to analyze the impact on consumers and ensure fair treatment. IRDAI must evaluate potential risks to the insurance ecosystem, including financial stability and adherence to international standards.
To conduct a thorough assessment, IRDAI may be speaking with policyholders, insurers, and experts. Regulatory judgments frequently need to be in line with current legislation, business standards, and governmental policy frameworks. IRDAI might need more time to fully examine the issue if it has multi-sectoral ramifications (such as financial services, health, or pensions). IRDAI may have to wait for coordinated direction on matters that intersect with industries governed by organizations such as SEBI, RBI, or PFRDA.
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Delays in operations or decision-making may affect all parties involved, including policyholders and insurers. Unresolved issues may have an impact on customer happiness or trust. In the absence of clear regulatory rules, insurers may postpone the introduction of new products or schemes.
The GoM’s request for additional time to complete its proposals has stoked conjecture on potential modifications to the GST framework that apply to the insurance industry. Premiums for health and life insurance are regarded as necessary services. There are rumors that it might be lowered to 12% in order to promote greater adoption rates.
To make compliance easier, life, health, and general insurance will all have flat GST rates. Policies that support small businesses and low-income populations may be fully exempt from GST.
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A substantial portion of GST revenue comes from insurance services. Short-term revenue losses could result from lowering rates. Insurance is still not widely used in India, despite being an essential financial safety net. Without more awareness, rate reductions might not immediately increase uptake. Making a distinction between essential and non-essential coverage may lead to problems with compliance and categorization conflicts. Although the insurance business has continuously pushed for lower rates, it is still difficult to strike a balance between their demands and financial objectives.
Insurance premiums could become more affordable with lower GST rates, which would increase penetration, particularly in rural areas. Increased use of health and life insurance could enhance financial inclusion and lessen the strain on publicly financed social programs. A more straightforward and affordable tax system would encourage investments in the insurance industry, spurring expansion.
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