Insurers want GST to continue on term plans
New Delhi, Jan 22, 2025
Life insurance companies are opposing the exemption of term insurance policies from GST, citing increased costs due to the loss of input tax credit. They propose maintaining a 12% GST rate to offset costs. The decision has been deferred, awaiting feedback from insurance regulator Irdai. Inconsistent implementation could lead to higher premiums and impact affordability for consumers.
At a time when the ministerial panel on GST rationalisation is seeking to ensure that the benefits of lower tax are passed on to consumers, life insurance companies have petitioned against exempting term insurance policies from the levy.
The life insurance industry has argued that the move will result in withdrawal of input tax credit (ITC) benefit for taxes paid on goods and services and services used by them and will increase costs for them. Estimating that ITC adds up to 11%, the companies have told the group of ministers, led by Bihar deputy chief minister Samrat Chaudhary, as well as officials at the Centre that at least 12% GST should be imposed. Besides, they want the full benefit of ITC to be available to offset any cost disadvantage.
Life insurance companies have suggested that in the case of a reduction below 12%, there should be a reduction in the rate for insurance commission services too.
Key suggestions
One option will be to allow for zero rating, which means that while exempting GST on the output, there is no bar on availing of credit for taxes paid on inputs used for providing the service.
“Due to this additional burden (ITC withdrawal), life insurance companies will be compelled to increase the premium which will not fully meet the objective of govt to provide life insurance product at affordable price. Additionally, GST exemption on renewal premiums (for policies sold in previous years) would make it onerous and unviable,” the companies have said in a representation.
While exempting term insurance plans and health insurance up to a certain limit and for seniors was on the agenda of the last month’s GST Council’s meeting in Jaisalmer, the ministerial panel was asked to look at them once again.
One of the reasons for the decision being postponed was that insurance regulator Irdai had not sent its comments on the issue, which is expected in the coming weeks. Given that the insurance industry has taken up the issue of ITC with the finance ministry and the regulator too, Irdai may flag it before the group of ministers.
Besides, finance ministers are keen to ensure that the benefits of lower taxes are actually passed on to consumers since the anti-profiteering clause has now been done away with.
[The Times of India]
