Most states have agreed to a zero tax on individual health and life insurance premiums— currently taxed at 18%—under the proposed Goods and Services Tax (GST) reform agenda, Bihar Deputy Chief Minister Samrat Choudhary said after a meeting of the Group of Ministers (GoM) on insurance.
Choudhary, who heads the 13-member GoM, said the panel will submit its detailed report to the GST Council by October for deliberation.
While the GoM broadly favours a full exemption for individual health and life insurance policies, some states have flagged revenue loss concerns that could shape the final outcome at the GST Council's October meeting.
A complete exemption would also deprive insurers of input tax credits on operational costs, which could result in higher premiums or reduced agent commissions.
Telangana Deputy Chief Minister Mallu Bhatti Vikramarka said the GoM wants mechanisms to ensure the benefit of lower GST is passed on to consumers, not retained by companies. He estimated potential revenue losses at around ₹10,000 crore if GST on insurance is reduced to nil.
The GoM on Compensation Cess also met on Tuesday.
Punjab Finance Minister Harpal Singh Cheema cautioned that removing the compensation cess could result in a revenue loss of ₹21,000 crore for his state. "This means there is a need for structural change somewhere," he said.
States such as Punjab have demanded detailed discussions on adjusting for the loss and whether compensation will be provided, though no alternatives were discussed at the meeting. The cess, levied to compensate states for GST rollout-related losses, is set to expire on March 31, 2026.
Meanwhile, the finance ministry has said that the Central government remains committed to building a broad-based consensus with the States in the coming weeks to implement the next generation of GST reforms in the spirit of cooperative federalism.
Union Minister of State for Finance Pankaj Choudhary, the Chief Minister of Goa, the Deputy CM of Bihar, and finance ministers from West Bengal, Punjab, Kerala, and Gujarat attended the GoM meetings on insurance and cess.
The GoM on rate rationalisation will meet on August 21 in New Delhi.
In a big overhaul of the GST structure, the government has proposed a two-rate – 5% and 18% -- structure and do away with 12% and 18% rates. Under the proposed plan, sin and luxury goods would be taxed at 40%.
