A brewing row between the insurance sector and policymakers over the Goods and Services Tax (GST) shows growing tension. While the government’s proposal to exempt health and individual term life insurance premiums (for individuals/families) from the standard 18% levy offers hope to policyholders, industry stakeholders are raising alarm over limitations that could flip intended relief into financial strain.
Industry’s core concerns: ITC denial and inverted duty structure
Though consumers may benefit from premium relief, insurers warn that a full GST exemption, in place of a zero-rate or reduced rate, would block their ability to claim Input Tax Credit (ITC) and offset taxes paid on commissions, reinsurance, technology, distribution, and administration.
Also, the continuation of the inverted duty structure may increase costs for insurers by 7-10%.
The General Insurance Council (General Insurance industry body) has written to the Finance Ministry, calling for complete GST exemption on health insurance.
Moreover, sources suggest that the Finance Ministry is unlikely to do away with the inverted duty structure on health insurance, which ultimately will increase the cost on every health insurance policy for the insurer but bring the cost down for policyholders.
