The contentious issue of levying goods and services tax (GST) at the rate of 18% on insurance is expected to be taken up by the GST Council in its meeting next week but there remain questions on whether there will be an easy decision on the issue.
According to sources, one of the options before the GST Council is to exempt pure term and health insurance products from GST. This is one of the proposals by the fitment committee of the GST Council. Another option is to lower the rates to 5%.
However, revenue loss is a significant consideration for states and the issue is likely to be in for some discussion, sources have indicated. The proposal is expected to be taken up at the GST Council meeting on September 9 and the decision will have to be taken by states.
“Insurance has always attracted tax — at least for the last 30 years. Even before GST was introduced, service tax was levied on insurance. Why is this issue being debated now,” senior officials have pointed out.
The 18% GST on insurance has been widely debated on social media in recent weeks. INDIA bloc MPs had also held a protest over the tax and had called for a rollback. Union Minister for Road Transport and Highways Nitin Gadkari had also written to Finance Minister Nirmala Sitharaman seeking a withdrawal of the levy.
Sandeep Pareek, Partner, Indirect Tax, BDO India, pointed out that multiple stakeholders, including sitting ministers, have requested for exempting GST on term insurance as well as health insurance. “It is likely that the GST Council may favourably consider this demand of the industry, especially if the revenue loss, due to grant of such exemption, is not major,” he said.
However, to allow the full effect of exemption from GST to be passed on to the public at large, the insurance companies would also need to be allowed full input tax credit, without requiring a reversal of credit due to exemption from GST on term insurance, he pointed out.
In a recent reply to Parliament, the Centre had noted that about Rs 24,000 crore was collected from GST on health and life insurance in the last three financial years. Another Rs 3,274 crore was collected from the reissuance of health policies.
