Insurance Cos say GST Rate Cuts impact ITC Benefits, increases Costs
GST Exemption on Insurance – The ITC Conundrum
Life Insurance companies in India have urged the government not to exempt term insurance policies from Goods and Services Tax, arguing that removing or lowering the tax would withdraw their ability to claim Input Tax Credit ( ITC ) on various costs. Let us break it down for easier understanding – Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access,...
Life Insurance companies in India have urged the government not to exempt term insurance policies from Goods and Services Tax, arguing that removing or lowering the tax would withdraw their ability to claim Input Tax Credit ( ITC ) on various costs.
Let us break it down for easier understanding –
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Impact on Premiums
With GST removed (or significantly lowered) on term plans, insurers would lose the right to claim back the GST they pay on inputs—such as goods, services, or vendor costs—necessary to run their business. This lost ITC benefit, estimated at up to 11% on term plans, would likely raise overall expenses for insurers.
Insurers warn these added costs would eventually be passed on to policyholders in the form of higher premiums.
Calls for a 12% Floor
The industry has petitioned the central government’s ministerial panel (tasked with GST rationalization) to keep GST on term insurance at no lower than 12% if exemptions are not accompanied by a way to retain ITC.
Companies also seek a simultaneous reduction in the GST rate on insurance commission services if the tax on term plans goes below 12%, hoping to compensate for the lost input credit.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Policy Considerations
The government’s current objective is to bring down GST rates on essential services where possible and ensure those reductions benefit consumers.
However, insurance firms argue that if rate cuts come without preserving ITC, it undercuts affordability by stealthily raising the cost of doing business.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Pending Decision
A ministerial panel is set to revisit the issue after concerns were raised by the insurance regulator (IRDAI) and the finance ministry about the cascading effect of losing ITC. Further discussions and feedback are expected in the coming weeks.
Ultimately, the core point raised by the Insurers is that while a lower tax rate sounds consumer-friendly, removing or reducing GST without preserving input credits will increase their production costs. That, in turn, risks making term insurance more expensive for the very consumers the government hopes to benefit.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
