GST on insurance coverage could also be slashed to five% – Cash Information

The Items and Companies Tax (GST) Council could accept a discount within the tax charges on well being & life insurance coverage, as a substitute of a full waiver. The GST, which now applies at 18% on gross premiums, is more likely to be lowered to five%, whereas retaining the ability of enter tax credit score, in line with official sources.

Most members of the Group of Ministers (GoM) that reviewed tax charges for well being and life insurance coverage are favouring the tax lower, however really feel {that a} full exemption may solely jack up prices as enter taxes would get accrued for the insurers. Actually, sections of the insurance coverage trade reckons that even a 5% tax will end in non-utilisation of tax credit score, and pitch for a 12% output tax legal responsibility.

“We aren’t in favour of fully exempting life and medical health insurance premia from GST, however want to scale back the charges. We’ve finalised our report…now it’s as much as the Council to determine,” a member of the GoM informed FE. One other member mentioned: “A 5% GST on life and medical health insurance premia would cut back the burden on coverage holders.”

The GST Council is more likely to meet in April or Might to deliberate on the problem, the place it’s going to additionally take into account the report ready by Insurance coverage Regulatory and Improvement Authority of India (IRDAI) on taxation of those insurance coverage premia.

Some specialists had identified citing international precedents that what is required is a shift within the tax base in step with the notion of worth added tax. As an alternative of the gross premium, the tax base must be premium, as lowered by claims, which is revenue mark-up of the insurer. However it’s unlikely that the tax will likely be restructured in such a fashion.

Final month, the insurance coverage trade proposed to the IRDAI and the division of monetary providers (DFS) {that a} GST fee of a minimum of 12% must be levied on well being and life insurance coverage premia, together with the good thing about enter tax credit score to the insurance coverage enterprise.

The insurance coverage firms mentioned that enter tax paid constitutes round 8-11% of their value on time period plans, which must be offset by way of availing ITC. In case the tax is lowered to five%, the insurance coverage trade will likely be at a value drawback.

In February, Central Board of Oblique Taxes and Customs (CBIC) Chairman Sanjay Kumar Agarwal informed FE that giving well being and life insurance coverage premiums a whole exemption from the GST could result in a rise of their prices, which will likely be opposite to what the federal government intends to do.

“An entire exemption will deny the good thing about enter tax credit score (ITC) to insurance coverage firms, which will likely be factored into the premiums they cost from folks,” Agarwal informed FE in an interview. Below the GST legal guidelines, ITC profit just isn’t out there for these items and providers that are exempt from the levy of the GST.

Furthermore, sources say, most GoM members are unlikely to comply with a 12% fee, because it doesn’t grant satisfactory reduction to policyholders.

“The federal government desires to provide reduction, however a whole GST exemption just isn’t one of the best answer. If insurance coverage is absolutely exempted, firms received’t have the ability to declare tax credit, which may really enhance their bills and, in flip, premium costs,” mentioned Sandeep Sehgal, partner-tax, AKM World. “The GoM is contemplating a greater answer—lowering GST to five% whereas permitting firms to assert ITC,” he added.

FE had reported in October, that the GoM tasked with reviewing tax on well being & life insurance coverage, had taken a view that no GST must be levied on time period life insurance coverage, and on medical health insurance premiums paid by senior residents, above the age of 60. It, nevertheless, determined towards a whole tax waiver for medical health insurance, the place the GST is levied at 18% at current.

In response to sources, a whole exemption of term-life insurance coverage from GST will value the exchequer about Rs 200 crore yearly, whereas exempting senior residents’ medical health insurance premiums will value one other Rs 3,000 crore, sources mentioned. Between FY22 and FY24 the overall GST collected from medical health insurance premiums was about Rs 21,000 crore.

Bipin Sapra, tax companion, EY India mentioned that globally, exemptions are thought of because the worst type of profit the trade can ask for for the reason that ITC will get blocked, resulting in cascading and better costs. “Accordingly, 5% with ITC is low to profit the shoppers and excessive sufficient to have the ability to recuperate most of ITC on inputs,” he added.

Sivakumar Ramjee, govt director, Nangia Andersen mentioned: “With a 5% fee with ITC ensures insurers can declare enter tax credit, lowering the cascading tax burden and maintaining premiums aggressive.” Moreover, this strategy limits the federal government income loss to round Rs 36,112 crore, in comparison with Rs 50,000 crore if absolutely exempted, mentioned Ramjee.