GST relief on insurance: Why 5% tax could be better than a full waiver for consumers
The GST Council is reportedly leaning towards a middle-ground approach rather than a complete waiver for health and life insurance policies. At present, health and life insurance gross premiums attract 18% GST, and this is expected to be brought down to 5%, FE reported, citing sources.
This reduction, rather than a complete waiver in GST on gross insurance premiums, will be beneficial for both policyholders as well as the insurance industry. A complete GST exemption would see input tax credit accumulating for the insurers, as a result insurance costs would go up for consumers, say experts.
A reduction from 18% to 5% while retaining input tax credit would address concerns about cost escalation due to accumulated input taxes, they said.
Kunal Varma, Co-Founder and CEO of Freo, said, “At first glance, a full GST waiver on health and life insurance may seem like a big win for consumers, but it’s important to look at the bigger picture. Currently, insurers can claim input tax credit, which helps offset their GST expenses on services and supplies. If that benefit goes away due to a full exemption, insurers could see their costs go up, and those costs may eventually be passed on to the end consumer through higher premiums.”
