Insurance Premiums to Cost a Policyholder under New GST Proposal

With the new GST rolling in from the Centre, there are going to be a number of changes where products and services will either cost more or lesser than what it’s priced at now. For the middle class family, an immediate impact which can be observed with the new GST is that insurance premiums will have a policyholder shell out more money due to the increase in the tax rate that has been imposed on insurance. For families who own a car and who pay for term and health insurance, the annual increase would come up to a total of Rs.1,000 a year on average. The impact that GST will have will show an increase from 15% to 18% in the tax that’s paid.

Non-life insurance companies have been looking to gain the advantage of tax credit. According to the service tax regime, insurance companies have been in the list of businesses which are exempt from benefits that come under the input tax credit. Life insurance companies have said that the input tax credit will vary from one company to another depending on the maturity level of the company.

Any regulations or revisions in taxes will have to acquire approval from the insurance regulator. It is known fact that most families end up paying Rs.20,000-Rs.25,000 to come under the umbrella of benefits of a health insurance cover. This amount is set to increase by around 3% and a similar situation will be seen in the premiums paid for auto insurance. Banking will also see marginal increase in the charges which have to be paid by a customer. But, as most earnings are sought by interest spreads, the main impact of the revision will be limited to the loan processing fees, card fees, penalties, and remittance categories.

Life insurance is taxed differently when compared to term insurance as the latter is categorised as a risk premium while the former come with a health component and is taxed differently.

Partner and Leader-Insurance of PwC India, Joydeep K. Roy, stated that ULIP and Endowment products come with a large component of consumer savings apart from risk premium. The service tax, without cess, was levied at 14.5% on various pure risk products, 3.5% on the first year followed by subsequent 1.75% on other endowment plans.

Roy also stated that the GST was meant to be implemented sensitively on various categories of products. Micro insurance or any other certain insurance products which fall below a threshold needs to be exempt from changes due to the GST.