The GST Council is reportedly leaning towards a middle-ground approach rather than a complete waiver for health and life insurance policies. At present, health and life insurance gross premiums attract 18% GST, and this is expected to be brought down to 5%, FE reported, citing sources.
This reduction, rather than a complete waiver in GST on gross insurance premiums, will be beneficial for both policyholders as well as the insurance industry. A complete GST exemption would see input tax credit accumulating for the insurers, as a result insurance costs would go up for consumers, say experts.
A reduction from 18% to 5% while retaining input tax credit would address concerns about cost escalation due to accumulated input taxes, they said.
Kunal Varma, Co-Founder and CEO of Freo, said, “At first glance, a full GST waiver on health and life insurance may seem like a big win for consumers, but it’s important to look at the bigger picture. Currently, insurers can claim input tax credit, which helps offset their GST expenses on services and supplies. If that benefit goes away due to a full exemption, insurers could see their costs go up, and those costs may eventually be passed on to the end consumer through higher premiums.”
Also read: GST on insurance may be slashed to 5%
So while a waiver intends to make insurance more affordable, without careful structuring, it could end up having the opposite effect in the long run, he said adding that “a better approach might be to reduce the GST rate instead of removing it entirely — that way, insurers retain input credit and consumers still benefit from lower costs.”
GST relief on life and health insurance: What’s the insurance industry take on this proposal
The insurance industry appears divided on the matter. While some stakeholders support a lower 5% GST, others argue that this rate might still lead to unused tax credits, making a 12% output tax liability a more practical alternative. The final decision will likely weigh the trade-offs between affordability for policyholders and financial viability for insurers.
It remains to be seen how the GST Council balances these competing interests in its upcoming deliberations. The GST Council is expected to meet next month to discuss several important issues, including the proposal to reduce tax on health and life insurance premium.
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