No Input Tax Credit On Exempt Insurance Premiums: CBIC To Insurers

In a key clarification to insurers, the Central Board of Indirect Taxes and Customs has said that input tax credit will not be allowed on individual life and health insurance premiums that are exempted under the goods and services tax.

The move comes days after the GST Council, in its latest meeting, exempted individual life and health insurance policies from GST, marking a significant policy shift aimed at making insurance more affordable.

According to sources, CBIC has clearly conveyed to insurers that ITC benefits are not available on any exempted services under GST law, including the newly exempted insurance policies.

“No ITC on exempt individual life and health insurance premiums,” the tax authority has told insurers.

Top brass of insurance companies met with CBIC officials on Friday, seeking greater clarity on the applicability of the revised GST framework on exempted insurance premiums.

However, CBIC clarified that ITC may still be allowed on certain policies if the underlying service was taxable before September 22, the date from which the new exemption is set to take effect.

“A detailed notification is expected to be issued shortly, outlining the tax treatment of these exempted policies, particularly around transitional provisions and eligible credit, if any,” an official said.

This comes amid industry concerns over the implications of the exemption on insurers’ input tax credit structure, which could impact pricing and margins.

The GST Council’s decision to exempt individual policies was taken with the aim of increasing insurance penetration, especially for health and term life covers. However, insurers are now navigating the practical challenges arising from the exemption — particularly the loss of ITC, which was earlier used to offset tax paid on inputs like technology, marketing, and administrative services.