Lower GST to stem slowdown in sales of life insurance policies: Insurers request GST Council

By: Admin
May 31, 2024
Categories: GST Recent News
4 Min Read

In what could be one of the top agenda items that the Union Government might pick up after assuming office after the ongoing general elections, insurance companies have knocked on the doors of the GST Council. These companies are seeking a cut in GST rates in a phased manner, beginning with a reduction of levies on life insurance, followed by health insurance.

According to sources, insurance companies have submitted a detailed representation seeking a reduction in GST rates on life insurance products from the current 18% to 12%, citing that high rates are pushing people to opt out of life insurance and go for alternatives. The government’s agenda to push inclusive growth and have an insured society is getting defeated, with premiums and products becoming more costly, they added.

The insurers are also demanding a similar reduction from the current 18% to 12% on health insurance, following the reduction in life insurance.

Apart from this, the insurers have also asked the GST council for clarity on the applicability of GST to co-insurance. While seeking clarity, insurance companies are asking the council to consider the removal of GST on outsourcing or sharing the insurance burden by one company with another under sub-contracting.

“Insurance companies have sought urgent intervention from the government, and it is likely that the new government, after assuming office, could take this representation to the GST council for a detailed deliberation,” sources in the know added.

If these proposals are considered, they will have to be cleared by the GST council-nominated law committee, fitment committee, and officers before the council takes them up formally.

Meanwhile, CNBC TV-18 has reached out to the Finance Ministry seeking a response on the proposals sent by the insurance sector and is awaiting responses.

Experts, while explaining the issue, stated that to promote insurance coverage in the country, a reduction in GST rates will be in sync with the government’s idea of having each and every individual covered for life and health risks for a better and more secured future. On the co-insurance/re-insurance issue, sources explained that it is a common trade practice by insurance companies to cede a portion of risk to reinsurance companies against a consideration termed a ceding premium. The reinsurance companies, after assessing the risk being taken over, allow a discount to the insurance company from the value of the ceding premium.

Such a discount is known as a re-insurance commission. The need for clarity came to the fore as the Directorate General of GST Intelligence (DGGI) investigations had recently raised an issue with general insurance companies. These companies alleged that the amount represented as reinsurance commission is a consideration that is liable to GST.

Insurance companies believe that the DGGI has overlooked the nature of the reinsurance contract, as the discounts given do not entail any service in reciprocity. Further such commissions in the erstwhile service tax regime were not levied on service tax.

Similarly, to explain the issues related to co-insurance, sources say that it involves multiple insurance companies coming together for the purpose of underwriting a common risk. In a co-insurance contract, the insurance policy is issued to the insurer, recognising, inter alia, all insurers with a proportionate share of their respective premiums.

“For administrative convenience, one of them is recognised as the lead insurer who undertakes the administration-related activity and issues the invoice for recovering the full premium,” sources added.

Here too, DGGI investigations held that sharing premiums between the leader and other insurance companies amounts to supply and demand tax from the insurance companies. On this issue as well, during the service tax regime, no tax was levied. Further, even if tax is paid by one entity, the other entity is eligible to avail credit, making the whole transaction revenue neutral, according to sources.

However, an advocate said, who had filed writs even for rate disparities, stressed that the reduction of the rate from 18% to 12% may not be a pragmatic solution. “The feasible approach would be the rate rationalisation for 12% and 18% rate structures, and the GST Council would certainly have this as an agenda point when it meets next,” he said.

“For the long-term insurance policies that overlapped from the pre-GST regime to the GST regime, there has not been any reduction in the insurance premium that has been charged by the insurance companies to the customers,” added he.

He also suggested that the insurance companies must first look at the benefit, which should have been passed. He added that it needs to be seen whether anti-profiteering provisions will kick in in such situations.

Source from: https://www.cnbctv18.com/economy/lower-gst-stem-slowdown-sales-life-insurance-policies-insurers-gst-council-co-insurance-19420713.htm