Until now, premiums have attracted varying GST rates. Health insurance, ULIPs, and term life were taxed at 18 per cent, while endowment policies carried 4.5 per cent GST on the first premium and 2.25 per cent on renewal premiums: Reports
MUMBAI: Beginning Monday, individual life and health insurance policies will be fully exempted from Goods and Services Tax (GST) bringing immediate cost relief to policyholders struggling with surging premiums. This comes after the government last week nudged life, non-life and pure
health insurance companies to fully pass on the GST reduction benefit to policyholders.
Until now, premiums have attracted varying GST rates. Health insurance, ULIPs, and term life were taxed at 18 per cent, while endowment policies carried 4.5 per cent GST on the first premium and
2.25 per cent on renewal premiums. Single premium annuity policies were taxed at 1.8 per cent.
Anuj Tyagi, managing director and chief executive officer at HDFC Ergo General Insurance confirmed to FC that the insurer will pass on the GST benefit to its customers.
Other private general and life insurers too confirmed that they would pass on the GST benefit. The public sector insurers have already indicated that they would be passing on the full GST benefit. However pure health insurers while confirming that their customers would get full GST benefit, added that they are in a wait and watch mode to see the impact of the GST exemption on sale volumes and the impact of the loss of Input Tax Credit (ITC) benefit on their balance sheet to
determine their future strategy.
A spokesperson from Niva Bupa Health Insurance said, “We will be passing on the full GST benefit to our customers.”
When asked what impact would the loss of ITC benefit have on its balance sheet, the spokesperson said, “We are in a wait and watch mode to see how the loss of ITC benefit pans out but we are optimistic that the GST reduction would make insurance affordable and help increase sale volumes, encourage those with inadequate coverage to gradually move to a higher sum assured. So, any premium increase or introduction of co-pay clause to offset the loss of ITC benefit may not be required as we anticipate higher sales to cushion the impact,” added the spokesperson.
Under next generation GST reform, insurers cannot claim Input Tax Credit (ITC) on services such as brokerage and commission for individual health and life insurance policies. Reinsurance and
commissions makeup 90 per cent of the insurers’ total expenses. While nil GST would lower the premiums and help stimulate demand, the classification of these services as “exempt” means that insurers will lose access to input tax credits on expenses linked to such policies.
Insurers will be required to reverse input tax credits relating to these exempt outputs. This embedded tax could eventually feed into the costing structure, thereby impacting the profits of the insurance companies.
