GST Impact on Health and Life Insurance Premiums:
The Goods and Services Tax (GST) significantly affects health and life insurance premiums in India.
Current GST Rate:
Political Demands:
Several political leaders, including Rahul Gandhi, Mamata Banerjee, and Nitin Gadkari, demand the withdrawal of GST on life and health insurance policies, citing it as a hindrance to India's universal insurance coverage goal.
GST Collection:
GST collection on insurance premiums has increased substantially over the past few years, from ₹5,354.28 crore in FY21-22 to ₹8,262.94 crore in FY23-24.
Pre-GST Era:
Before GST implementation in 2017, insurance premiums attracted a 15% service tax, including Basic Service Tax and Swachh Bharat cess.
GST Impact:
The transition from service tax to 18% GST increased premium amounts.
GST Calculation:
To understand the GST impact, consider a health insurance policy with a base premium of ₹15,000 and an 18% GST rate.
GST Amount:
GST = Base Premium × GST Rate = ₹15,000 × 0.18 = ₹2,700
Total Premium:
Total Premium = Base Premium + GST = ₹15,000 + ₹2,700 = ₹17,700
Additional Cost:
The GST adds ₹2,700 to the base premium, resulting in a total premium of ₹17,700.
Consequences:
This additional cost may lead to:
1. Underinsured or inadequate coverage
2. Deterring customers from purchasing policies, leaving them vulnerable to future health emergencies
Tax Deductions:
Parthanil Ghosh Director and Chief Business Officer of HDFC ERGO General Insurance adds: "Policyholders opting for the old tax regime can claim tax deductions on insurance premiums, subject to specified limits, under Section 80D and 80C of the Income Tax Act".
Potential Premium Reduction:
Ajay Shah, Head of Distribution, Care Health Insurance says: "If GST on insurance products is reduced or eliminated, insurers may pass the benefits to customers, reducing premiums and making insurance more affordable".
Industry Challenges:
Insurance companies face challenges, including:
1. Inability to claim Input Tax Credit (ITC) on hospital charges
2. Passing on costs to customers as premiums
Possible Solution:
Allowing insurance companies to claim ITC on all GST services procured can help reduce premiums further.
(Input from various sources)
(Rehash/Vaishnavi Dalvi/MSM)