The GST Council has decided to abolish GST on life and health insurance policies starting September 22nd. This is expected to make policy premiums cheaper and increase interest among the general public. However, due to the removal of Input Tax Credit (ITC), companies will have to bear some costs themselves, meaning the relief in premiums might not be complete.
Health insurance policy: The GST Council has taken a historic decision to abolish GST on individual life and health insurance policies from September 22nd. This move is anticipated to make policies more affordable and enhance insurance accessibility for the common people. Nevertheless, without ITC, companies will need to cover input costs themselves, which could prevent the full premium reduction from reaching customers. The objective is to make health and life insurance more accessible.
Current Situation of Insurance Companies
Currently, insurance companies claim Input Tax Credit (ITC) of up to 8 to 10 percent on various input services. This provides some relief in their operational costs. This benefit will cease to exist after the removal of GST. Companies will now have to bear the entire burden of input costs. In this scenario, companies might incorporate their increased costs when determining policy premiums.
This will be a challenging period for insurance companies, as not receiving ITC will increase their operational expenses. Experts suggest that policyholders may not receive the full benefit that is currently being anticipated.
Benefits and Expectations for the General Public
Executives from the insurance industry believe that the removal of GST will make insurance products cheaper and more attractive for the general public. According to Tapan Singhal, MD and CEO of Bajaj Allianz General Insurance, removing GST on health and life insurance is a significant step towards increasing public interest in insurance. This will benefit crores of Indians with life and health protection.
Sarbvir Singh, President and Joint Group CEO of PB Fintech, also stated that this historic step has been taken by the government at a time when healthcare costs are continuously rising. He mentioned that this move will be a relief for people, especially on essential products like term life insurance.
Estimation of Impact on Premiums
Experts opine that the benefit of removing GST will be directly reflected in premiums, but only if the ITC issue is resolved. Without ITC, insurance companies will have to bear the entire burden of input costs themselves. This could impact policy premiums.
Many finance experts believe that companies will set premiums based on their costs. In such a case, the benefit received by customers will not be as clear as was hoped from the decision to remove GST.
Impact on the Insurance Industry
The removal of GST will affect insurance companies from both advantageous and disadvantageous perspectives. On one hand, this step will be attractive to the general public, and policy sales are likely to increase. On the other hand, companies' costs will rise, as the benefit of ITC will be eliminated.
At this time, the financial regulator IRDAI is also expected to issue comprehensive guidelines on this matter in the coming weeks. These guidelines will help balance policy premiums and customer benefits.
