• Notification Date: 24-01-2025
• Notification No: N/A

Life insurance companies have opposed the GST exemption on term policies, warning of rising premiums

The life insurance companies are opposing the proposed Goods and Services Tax (GST) exemption on term insurance policies, arguing that it will result in higher costs for consumers. The insurers argue that the removal of input tax credits (ITCs) on their expenses could increase operational costs by as much as 11%, ultimately resulting in higher premiums for policyholders.

This has been taken up by a panel of government which is reviewing GST rates for the life insurance sector, headed by Bihar Deputy Chief Minister Samrat Chaudhary. They have said that a minimum 12% GST rate on term insurance policies would partially offset these extra outlays. Besides that, they suggest cutting the GST rate applied to insurance commission services as a further measure to step down the effect which is increasing. They also warn that if their suggestions are not implemented, the more expensive products might be out of reach for many consumers, thus defeating the government's objective of making insurance coverage more affordable.

The industry is also worried about exempting GST on renewal premiums of policies sold during the previous years, which may make it non-feasible for insurance companies to retain the current pricing. Earlier, the GST Council had considered term insurance and some health insurance plans for exemption, but it was put off. Now, IRDAI is supposed to give their input, and the finance ministers want that to go directly to the consumers.

Therefore, the life insurance industry is highly concerned about such an outcome where it will benefit from maintaining price affordability and proper redistribution of tax burden.