GST relief on insurance excludes bank retirees; employees write to Sitharaman

In a significant decision made at the 56th GST (Goods and Services Tax) Council meeting in New Delhi on Wednesday (September 3), the Narendra Modi government announced a zero GST rate on individual health and life-insurance premiums, effective from September 22.

The move has been widely welcomed by the public, who see it as a much-needed step toward making healthcare more affordable.

However, while most citizens celebrate the tax relief, a substantial group of bank retirees finds itself left out due to technicalities in policy classification, raising questions about equity and oversight in policy implementation.

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Group policy loophole

Bank retirees are typically covered under group health insurance schemes, which are negotiated by the Indian Banks’ Association (IBA) and implemented by individual banks in partnership with the insurance companies.

If the purpose of GST exemption on health insurance is to ease the financial burden on individuals, then retired individuals paying their own premiums — regardless of the policy being labelled as “group” — should logically qualify for the same relief.

Though the premium is fully borne by the retirees themselves, the scheme is still classified as a group insurance policy.

This classification becomes a critical roadblock: The GST exemption applies only to individual insurance policies — not to group policies. As a result, the retired bank employees continue to pay 18 per cent GST, despite paying their premiums independently.

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Heavy burden on pensioners

The financial implications are significant. In the current policy year (2024–25), a retired bank officer pays:

Rs 34,661 as annual premium

Rs 6,239 as GST

Total: Rs 40,900 for a family floater policy of Rs 4,00,000

For many older retirees, this amount is equivalent to or greater than a full month’s pension. To put things in perspective, when this group insurance scheme was first introduced, the total annual premium was around Rs 7,000— a figure that is now matched just by the GST alone.

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Call for reconsideration

The retirees argue that the classification of their policy as “group insurance” is merely a logistical arrangement for administrative convenience and should not be a reason to deny them the benefit of zero-rated GST. After all, they are paying their premiums directly, and it is not part of any corporate subsidy. It is only collected by the employer and remitted.

There is a growing concern that over seven lakh bank retirees would be impacted by the change. Many feel this is a classic case of policy oversight and are urging the government and the council to re-examine the criteria to ensure that the pensioners are not penalised for bureaucratic technicalities.

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The All-India Bank Employees Association (AIBEA) has taken up the cause, writing to Union Finance Minister Nirmala Sitharaman to highlight the anomaly and request appropriate redressal.

Urgency before policy renewal

Time is of the essence. The current group insurance policy for retirees is valid only until October, with renewals scheduled from November 1, 2025. Unless the issue is addressed before this renewal cycle, bank retirees will continue to miss out on the GST benefit, despite being among those most in need of financial relief in healthcare expenses.

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A matter of equity

The central concern remains one of fairness. If the purpose of GST exemption on health insurance is to ease the financial burden on individuals, then retired individuals paying their own premiums — regardless of the policy being labelled as “group” — should logically qualify for the same relief.

It is hoped that the GST Council and the finance ministry will take swift corrective action to ensure no retiree is left behind due to a technicality.