The Tamil Nadu government has asked the Union finance ministry to exempt the state government-sponsored health insurance schemes from service tax.

Industry representatives also expressed support to the proposal, saying this would not only bring down the premium charges, but would also bring more people below poverty line (BPL) into the insurance net.

Speaking at the pre-consultative meeting with the finance ministers of various state governments called by Union finance minister Pranab Mukherjee, Tamil Nadu finance minister K Anbazhagan said, An anomalous situation arises wherein the state ends up paying nearly Rs70 crore as service tax to the Union government every year while implementing the health insurance scheme in the state.

He said despite repeated requests on the same platform to exempt this scheme from service tax, the request was not considered favourably.

V Jagannathan, chairman and managing director, Star Health and Allied Insurance Company, said hospital bills should also be exempt from service tax and that it would bring down the premium charged to the customers.

Star Health covers a population of 270,000 through state-sponsored health insurance schemes in Tamil Nadu and Andhra Pradesh. At present, the two state governments spend around Rs1,200 crore as premium, of which 10 per cent goes as service tax, according to Jagannathan.

Health must be treated on a par with food and clothing. If the service tax is exempted on premium and claims, it would lead to substantial savings and boost the schemes, he said.