​​Insurance penetration in India is still very low and a GST of 18% may not be the best step forward, said a recent research report by the State Bank of India. The report suggested that the government should cut the GST rate to 5% or nil on insurance premiums.
"Taxing insurance premiums at 18% at a time when insurance penetration in the country is merely 4.2% 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% or a “nil” rate in order to bring in more population," it said. The industry has been pressing for direct and indirect tax sops for some time now, primarily for cushioning from the pandemic impact, from which the sector is still recovering, but also to improve penetration and increase the speed of insurance influence. However, there has not been much development on this front, the report said.