During the period when the ministerial panel on GST rationalization is asking to ensure that the advantages of lower tax are moved on to consumers the life insurance companies have filed a petition against waiving off the term insurance policies from the levy.
The life insurance industry has claimed that the move will result in withdrawing the Input tax credit benefit for the filed taxes on the goods and services they utilize and shall enhance their costs.
Approximating that ITC adds up to 11% the companies have notified the group of ministers, led by Bihar deputy CM Samrat Chaudhary along with the officials at the Centre that at least 12% GST must be levied. They also desired the benefit of ITC to be available to compensate for any cost disadvantage.
In the matter of a reduction of less than 12%, there must be a reduction in the insurance commission services rate, as advised by Life Insurance companies.
One possibility is to allow zero rating. This means that while the tax on the services provided is waived, there is no cap on the amount of credit that can be claimed for taxes paid on the materials or services used to provide those services.
Life insurance companies as of this additional load (ITC withdrawal) will be pushed to enhance the premium which shall not completely satisfy the government’s objective to furnish the life insurance product at a cheaper cost. Additionally, the GST exemption on renewal premiums for policies sold in previous years would render it burdensome and unviable.
There was a discussion at last month’s GST Council meeting in Jaisalmer about providing tax breaks for seniors on term insurance and health insurance, up to a specific limit. However, the ministerial panel was asked to revisit these topics.
One reason for the postponement of the decision was that the insurance regulator, IRDAI, had not yet provided its comments on the matter. These comments are expected in the coming weeks. Since the insurance industry has raised the issue of GST input tax credit (ITC) with both the finance ministry and the regulator, IRDAI may address it before the group of ministers.
Furthermore, finance ministers are willing to ensure that the benefits of lower taxes are passed on to consumers, especially now that the anti-profiteering clause has been removed.
