GST Waiver On Insurance Premiums May Backfire, Push Prices Higher, Industry Players Warn
The GST Council may exempt term life and senior citizens' health insurance premiums from GST to boost adoption. Experts have mixed reactions, citing pricing increases and ITC loss.
News18
In a big overhaul, the GST Council is mulling to exempt the 18% taxation of term life insurance premiums and health insurance premiums for senior citizens, aimed at boosting insurance adoption, especially among the elderly and middle-income groups.
Currently, term life insurance premiums and all health insurance policies attract an 18% GST. However, a panel of ministers has proposed a full exemption for: term life insurance premiums for all policyholders, regardless of age; and health insurance premiums for senior citizens (above 60 years), with no upper limit on the sum insured.
A large consensus of industry players is expecting that the move would lead to expand penetration and wider adoption among seniors and the middle class.
However, R Balasundaram, Secretary General, Insurance Brokers Association of India (IBAI) calls it 'guarded optimism'.
He said that insurers have already expressed that a zero GST on policies could lead to an increase in pricing, as the benefits of input tax credit of GST will not be available to them.
Insurance premiums have been rising sharply—by 20–25% in some cases—while penetration remains low. Fewer than 40% of Indians have health insurance, and life insurance penetration is below 4%.
Penetration of term life and health insurance remains extremely low, largely due to high age-related premiums, inflationary pressures, and the burden of GST, explained Surinder Bhagat, Head- Employee Benefits, Large Account Practices, Prudent Insurance Brokers.
He believed that a move to zero GST from a high 18% can be transformative- it will make coverage more affordable for seniors, expand penetration, and encourage uptake of higher coverage limits.
Sharad Mathur, Managing Director and CEO, Universal Sompo General Insurance said the move could lead to savings up to 18% annually for individuals.
This could boost insurance adoption among seniors and the middle class, he added.
Uncertainty Over Input Tax Credit
A large consensus of experts are worried on the elimination of input tax credit (ITC) that could lead operational expenses and compress margins.
For the industry, it may increase demand but slightly compress margins unless input tax credits are adjusted, said Mathur.
Overall, the move is strongly positive for consumers and industry growth, though insurers must adapt to mitigate the ITC loss, emphaised Vaibhav Kathju, Founder of Inka Insurance.
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