Life insurance companies are challenging the current exemption of term insurance policies from Goods and Services Tax (GST).

They argue that this exemption leads to a loss of input tax credit (ITC) for them, increasing their costs. 

To offset this, they propose either maintaining the current 12% GST rate or reducing the rate of insurance commission services. 

This issue is currently under review by a ministerial panel. 

The Issue

Currently, term insurance policies are exempt from GST. However, life insurers claim that this exemption prevents them from claiming input tax credit for taxes paid on goods and services used in providing insurance services. This, they argue, leads to higher costs that are ultimately passed on to consumers in the form of increased premiums.   

Industry Demands

To address this issue, life insurance companies are proposing two solutions:

  • Maintaining a 12% GST Rate: This would allow insurers to claim input tax credit, offsetting the impact of the tax on their costs.
  • Reducing the Rate of Insurance Commission Services: This would help balance the costs associated with GST implementation.   

The Government’s Stance

The government is currently reviewing the issue, seeking feedback from the insurance regulator, IRDAI. The decision on whether to exempt term insurance policies from GST will likely be made by the GST Council.   

The Insurance Regulatory and Development Authority of India (IRDAI) is expected to weigh in on the matter. Finance ministers are also keen to ensure that any tax reductions benefit consumers directly.

Disclaimer:  Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. In no event the author shall be liable for any direct, indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information.

CS LALIT RAJPUT

He has contributed in ICAI, ICSI and MCCI and other various Newsletters. He is also a speaker at various platforms including seminars / webinars.