GST on Insurance Premiums: Potential Reduction to 5% on the Horizon
The Goods and Services Tax (GST) Council is considering a significant change to insurance taxation, potentially reducing the current 18% GST rate to 5% for health and life insurance premiums. This proposed modification could bring substantial relief to policyholders while maintaining a balanced approach for the insurance industry.
Current Taxation Landscape
Currently, insurance premiums are subject to an 18% GST, which has been a point of contention for both consumers and insurance providers. The proposed reduction aims to strike a delicate balance between providing consumer relief and maintaining the financial viability of insurance companies.
Why Not a Complete Exemption?
- A full GST exemption could potentially increase overall insurance costs.
- Removing GST would block input tax credit (ITC) for insurance companies.
- Blocked ITC could lead to higher premium prices for consumers.
Key Insights from Experts
Tax experts and government officials have weighed in on the potential changes. Sandeep Sehgal from AKM Global suggests that the 5% rate with ITC is a balanced approach that provides relief while keeping the industry sustainable.
Financial Implications
The potential tax changes come with significant financial considerations. Between FY22 and FY24, the total GST collected from health insurance premiums was approximately Rs 21,000 crore. A complete exemption could cost the exchequer around Rs 50,000 crore, while the proposed 5% rate would limit revenue loss to about Rs 36,112 crore.
What This Means for Policyholders
The proposed 5% GST rate could translate to more affordable insurance premiums. By allowing input tax credits, insurance companies can potentially offset their input costs, which could result in more competitive pricing for consumers.
Next Steps
The GST Council is expected to convene in April or May to deliberate on this proposal. They will carefully consider the recommendations from the Group of Ministers (GoM) and the Insurance Regulatory and Development Authority of India (IRDAI).
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