**Insurers Push for GST on Term Plans to Stay Put**
In a recent development, life insurance companies are advocating for the continuation of the Goods and Services Tax (GST) on term insurance policies. This move comes amidst discussions by the ministerial panel on GST rationalization to ensure that any reductions in tax rates are ultimately beneficial for consumers.
**Industry Concerns and Recommendations**
The life insurance industry has raised concerns that exempting term insurance policies from GST would lead to the withdrawal of input tax credit benefits for taxes paid on goods and services used by them. This, in turn, could result in increased costs for the companies. Estimating that input tax credit accounts for approximately 11% of their expenses, the companies have proposed that a minimum GST rate of 12% should be maintained.
Additionally, they are advocating for the full benefit of input tax credit to be available to offset any potential cost disadvantages. In the event of a reduction in the GST rate below 12%, the companies suggest a corresponding decrease in the rate for insurance commission services to maintain balance.
**Implications of Exemption**
If term insurance plans are exempted from GST, life insurance companies warn that they may be forced to raise premiums, contrary to the government’s objective of providing affordable life insurance products. Furthermore, exempting GST on renewal premiums for policies sold in previous years could create financial challenges for the companies, making it burdensome and impractical.
**Continued Discussions and Next Steps**
While the exemption of term insurance plans and health insurance for seniors was discussed at a recent GST Council meeting in Jaisalmer, the decision was postponed pending comments from the insurance regulator, Irdai. The industry has engaged with the finance ministry and the regulator on the issue of input tax credit, indicating that Irdai may address this matter with the ministerial panel in the near future.
**Ensuring Consumer Benefits**
Finance ministers are focused on ensuring that any reductions in tax rates translate into tangible benefits for consumers, particularly now that the anti-profiteering clause has been eliminated. The industry’s push to maintain GST on term plans underscores the complexity and importance of balancing financial considerations with consumer affordability in the insurance sector.
