Insurers Advocate Continuation of GST on Term Insurance Plans
By: Admin, AAERM Law Associates
Date: January 23, 2025
Categories: GST, Recent News
The ministerial panel on GST rationalization is discussing ways to ensure tax benefits are passed to consumers. However, life insurance companies oppose exempting term insurance policies from Goods and Services Tax (GST).
Why Insurers Oppose GST Exemption
Life insurers argue that removing GST from term plans will eliminate the Input Tax Credit (ITC) benefit. This credit offsets taxes paid on goods and services used by insurers. Without ITC, companies would face higher costs, which could ultimately lead to premium increases.
Importance of ITC for Insurers
Insurance companies estimate that ITC contributes around 11% to their operations. They have urged the GST rationalization group, led by Bihar Deputy Chief Minister Samrat Chaudhary, to retain at least a 12% GST on term plans. Additionally, they request assurances that the full ITC benefit remains intact.
Insurers also suggest that if GST on term insurance drops below 12%, the government should proportionally reduce the GST rate for insurance commission services.
Proposal for Zero-Rating Term Insurance
As an alternative, insurers propose zero-rating term insurance policies. Under this system:
- GST would not apply to the output service.
- Companies could still claim ITC on taxes paid for inputs.
This approach would help insurers maintain lower costs while complying with GST regulations.
Potential Impact on Premiums
Without ITC, life insurers warn of higher premiums. This would contradict the government’s goal of providing affordable life insurance products. Insurers also emphasize that GST exemptions on renewal premiums for existing policies could make those policies financially unsustainable.
They explained:
“Without ITC, life insurance companies will need to raise premiums. This move would fail to support the government’s objective of offering affordable life insurance products.”
Status of the GST Exemption Decision
The GST Council discussed exemptions for term and health insurance at its recent meeting in Jaisalmer. However, the ministerial panel postponed its decision, awaiting comments from the Insurance Regulatory and Development Authority of India (IRDAI).
Insurers have also raised these issues with the finance ministry and IRDAI. Both bodies are expected to present their findings to the GST panel in the coming weeks.
In parallel, finance ministers are exploring ways to ensure tax reductions directly benefit consumers. This has gained importance after the removal of the anti-profiteering clause, which previously ensured tax cuts were passed to end users.
