GST Impact on
Insurance: With a hike in GST rates to 18% from the earlier 15%, insurance
sector products and services have become more expensive now.
These changes have come into effect after President Pranab Mukherjee and
Prime Minister Narendra Modi launched the goods and services tax (GST) in
a spectacular midnight ceremony held at Parliament’s iconic Central Hall on the
intervening night of June 30 and July 1 in the presence of a number of
dignitaries except the Opposition. GST has been dubbed as the single largest
tax reform in India after Independence in 1947.
For insurers, the increase in taxes will be passed on to the consumers.
The insurers expect higher compliance and administrative costs due to the
increased number of GST returns and also effect of taxability of inter-branch
Corporate policyholders, who have taken general insurance, can enjoy
input tax credit on the GST paid on their policies (it was available to them
even under service tax).
Life and health insurers will not have input tax credit as it is not
available for life and health insurances (as they are for personal purposes).
Even corporate policyholders with group life and health insurance for their
employees will not enjoy any input tax credit.
Impact on Practice of Buying Insurance
But here the question arises that hike in tax should impact your
decision of buying insurance or not. It is true that GST will make buying
insurance little expensive, but it is very important for an individual to
secure his life, especially when the individual is the sole bread-earner of the
family. Life insurance plans, specifically term insurance plans, are the real
life insurance plans which cover you and financially compensate your family in
It is important to look at the type of insurance plan holistically,
which includes its benefits, inclusions, policy coverage, exclusions, policy
term and its cost (premium).
Severe Competition Among Insurers
Also, with the increase in insurance
premiums, there will be a severe competition among the insurers for
offering the best insurance proposition to the consumer, which will be
apparently beneficial for the consumer. Insurance premium, apart from including
risk element, also includes expenses related to policy issuance, intermediary
commission, etc, which could be lowered by the insurers to compensate the
effect of enhancement of service tax in the new GST era.
Even though the hike will be nominal, taken
together for all the insurance covers, the increase in the outflow could be
something to account for by many policyholders.