The Goods and Services Tax (GST) Council may settle for a reduction in the tax rates on health & life insurance, instead of a full waiver. The GST, which now applies at 18% on gross premiums, is likely to be reduced to 5%, while retaining the facility of input tax credit, according to official sources.
Most members of the Group of Ministers (GoM) that reviewed tax rates for health and life insurance are favouring the tax cut, but feel that a full exemption could only jack up costs as input taxes would get accumulated for the insurers. In fact, sections of the insurance industry reckons that even a 5% tax will result in non-utilisation of tax credit, and pitch for a 12% output tax liability.
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“We are not in favour of completely exempting life and health insurance premia from GST, but wish to reduce the rates. We have finalised our report…now it’s up to the Council to decide,” a member of the GoM told FE. Another member said: “A 5% GST on life and health insurance premia would reduce the burden on policy holders.”
The GST Council is likely to meet in April or May to deliberate on the issue, where it will also consider the report prepared by Insurance Regulatory and Development Authority of India (IRDAI) on taxation of these insurance premia.
Some experts had pointed out citing global precedents that what is needed is a shift in the tax base in keeping with the notion of value added tax. Instead of the gross premium, the tax base should be premium, as reduced by claims, which is profit mark-up of the insurer. But it is unlikely that the tax will be restructured in such a manner.
Last month, the insurance industry proposed to the IRDAI and the department of financial services (DFS) that a GST rate of at least 12% should be levied on health and life insurance premia, along with the benefit of input tax credit to the insurance business.
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The insurance companies said that input tax paid constitutes around 8-11% of their cost on term plans, which should be offset through availing ITC.
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