GST Exemption Clarified: Individual vs. Group Health Insurance.
The Kerala High Court recently ruled that the Goods and Services Tax (GST) exemption under Notification No. 16/2025-CT(Rate) is applicable only to individual health insurance policies, and not to group health insurance policies, even for retired bank employees. This judgement and the limited exemption on individual insurance have far reaching impact on insurance offered by corporates/employers.
Background
Retired employees of various banks, members of group health insurance policies issued by the National Insurance Company Limited, filed writ petitions seeking a declaration that the 18% GST levied on their premiums was illegal. They argued that their policies should be covered by the exemption introduced following the 56th GST Council Meeting, which aimed to make health insurance affordable. The core of their argument hinged on the definition of ‘group’ in the notification. They contended that since they joined the group solely for availing insurance and not for any other common economic activity, they shouldn’t fall under the notification’s definition of a ‘group’, thus entitling them to the individual policy exemption.
Court’s Ruling
The High Court dismissed the petitions, holding that the petitioners were not entitled to the GST exemption.
Key findings:
1. Intention of the Notification: The court noted that the recommendations of the GST Council and the notification itself clearly stated the exemption was intended for individual health insurance policies, including family floater and senior citizen policies, to benefit the “common man”.
2. Definition of ‘Group’: While the notification defined a ‘group’ as persons who join together for a common purpose “other than availing insurance”, the court referenced the IRDAI (Insurance Regulatory and Development Authority of India) Regulations, 2016.
3. IRDAI Regulations: The IRDAI regulations prohibit forming a group solely for the purpose of availing insurance. A clear, evident relationship must exist between members and the policyholder for other services/activities.
4. Existing Relationship & Benefits: The court found that the policies in question were issued in terms of IRDAI regulations, indicating an existing relationship (prior employment with the banks). Furthermore, the Indian Banks’ Association negotiated the policies through collective bargaining, resulting in benefits not available to individual policyholders, such as lower premiums, coverage for pre-existing conditions, and no medical check-ups. These characteristics confirmed they were group policies.
5. Interpretation of Fiscal Statutes: The court also addressed the argument that ambiguity in fiscal statutes should favour the taxpayer. It clarified that this rule applies to the imposition of tax, but for exemptions, any doubt should be resolved in favour of the State. The court found no ambiguity in the notification’s intent to exclude group policies.
Conclusion
The judgment concluded that the exemption applied exclusively to individual policies and that the group health insurance policies for the retired bank employees did not qualify for GST exemption. The intent of exemption was always for individual insurance (family floaters and senior citizens included). The insurance by employers, associations, corporates will remain under 18% GST rate. The lack of a GST waiver for group policies, combined with the 0% GST rate on individual plans, might lead some employees to consider individual plans over employer-provided group coverage, although group plans still often offer benefits like coverage for pre-existing conditions and lower base premiums due to collective bargaining.
By,
CA Hitesh Sachdev
Indirect tax professional, Pune
