Why Insurance Players Are Also Batting For A 5% GST Slab Instead Of Full Exemption

In a significant relief proposal for individual policyholders, the group of ministers on GST reform is set to recommend a complete exemption of goods and services tax on health and life insurance premiums under the revamped regime expected to roll out around Diwali.

Insurance players, however, remain unclear on the mechanism of its implementation as with respect to the Input Tax Credit. Assuming a full GST exemption on health and life insurance products, insurance players will no longer be able to avail Input Tax Credit.

As such, from an industry perspective, GST calibrated down to 5% may be preferred rather than a complete waiver, said Gurpal Singh Dhingra, joint managing director at Prudent Insurance Brokers. It will be a relief to the consumer balanced with operational efficiency by maintaining the Input Tax Credit chain for insurers along with cascading costs, he said. The move would thus fast track financial protection possibilities in India while continuing to maintain the insurance ecosystem and keep its efficiency, he explained.

Brijesh Kothary, partner at Khaitan & Co, also said that a nominal GST rate of 5% would be a more pragmatic option than full exemption as it would preserve the Input Tax Credit mechanism, allowing insurers to continue offsetting taxes on backend costs, while still lowering the burden on policyholders. This approach strikes a balance, making insurance more affordable without creating cost inefficiencies for the industry, he also said.

Further, with the government proposing to revive anti-profiteering provisions as part of the rate rejig, insurers are likely to be under close scrutiny to ensure that the full benefit of any rate reduction is effectively passed on to consumers, he added.