Pass on GST cut benefits fully: Finance ministry to insurers
New Delhi: In a push to make insurance more affordable and accessible, the finance ministry has directed insurers to fully pass on the benefits of GST exemption on individual life and health policies to policyholders — both existing and prospective.
The move follows the GST Council’s recent decision to scrap the 18% tax on such policies, a reform expected to boost insurance penetration across the country.
The directions came during a meeting presided over on Monday by M. Nagaraju, secretary, department of financial services (DFS), with senior officials of the department, and other top stakeholders of the insurance industry.
Those who participated in the meeting included officials of the Irdai (Insurance Regulatory and Development Authority of India), chairmen of public sector insurance companies, CEOs of leading private sector life and non-life insurance companies, and officials from Life Insurance Council and General Insurance Council.
Insurance companies have told the government that they were still evaluating the costs of servicing insurance products given that GST rate exemption would also deny them the benefit of input tax credit.
They had earlier told the government that denial of input tax credit or no exemption from tax on various services used by insurers would prevent them from reducing premiums on policies to the extent of GST rate cuts.
Despite the apprehensions expressed by companies earlier, Nagaraju emphasised the importance of ensuring that the benefits of the tax reduction are fully passed on to both existing and prospective policyholders.
For outreach campaigns
The secretary further directed insurance companies to proactively undertake outreach campaigns to publicise the reforms and highlight their prospective positive impact in making insurance more affordable and accessible for the common man.
The government expects that GST rate cuts would make insurance more accessible and cost-effective, thereby strengthening financial security and enhancing insurance penetration across the country.
Before the exemption, 18% GST was levied on insurance but this tax came with input tax credit advantages. Under this, insurers were able to reduce their taxable liability by offsetting and claiming credits to the tune of GST they paid on goods and services they utilised.
Insurers incur expenses such as maintaining an office, commissions to agents, marketing expenditure, etc. All these expenses attract GST. Since these go as input to the final product (which is an insurance policy), the government allowed insurers to claim credits against the GST they collected from policyholders and reduce their overall tax liability.
The DFS meeting was attended by Swaminathan S. Iyer, whole time member (Life), Irdai; R. Doraiswamy, CEO & MD, Life Insurance Corporation of India; Girija Subramanian, chairman-cum-managing director, New India Assurance Company; Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance Company Limited; senior representatives from ICICI Lombard and Aditya Birla Sun Life Insurance; and other major insurance companies.