The insurance industry is closely watching developments around the proposed goods and services tax (GST) rate cut on premium for health and life insurance policies and whether it would allow them to claim input tax credit.
According to industry sources, any cut in the GST on insurance rates will have to be accompanied with input tax credit claim, which would ensure that the benefit of the reduction in rate can be passed on to customers.
The Group of Ministers (GoM) under the GST Council on health and life insurance is expected to meet on August 20 to discuss a possible cut in GST on these products. As per sources, the proposal under discussion is to reduce GST to 5% from the prevailing 18% rate along with ITC benefits.
This benefit may, however, be available to only insurance focussed products and not on investment products and would be provided to retail health insurance products and micro insurance products with the aim to widen financial security and insurance coverage.
However, discussions are still underway and the report of the GoM, once finalised, would be put before the GST Council to take a final decision. Till now, the proposal has not been taken forward and there remain concerns about revenue losses.
Insurers point out that any proposal on lowering the GST rate on insurance premium would have to be accompanied by the facility of ITC claim, else it could actually make policies more expensive.
“There are several genuine services that insurance companies carry out, for which they get ITC benefit. Lowering the rate could potentially impact premiums if it is not accompanied by ITC credit,” said an industry source.
A report by Emkay Global Financial Services also highlighted several of these concerns noting that the sustainable path to lowering the cost to the end consumer and easing the compliance burden on companies would be to bring down GST on premiums with ITC as well as lower GST rates on input services and goods, to align with the end GST rate.
