The steep 18% GST imposed on life and health insurance premiums has become a heated topic of debate among policyholders and industry experts. With insurance premiums rising annually, many feel that the additional GST burden is making insurance products increasingly unaffordable, particularly for middle-income families. A financial influencer’s viral post highlighted how GST on premiums is turning into an unexpected financial stressor for many.
How High GST Rates Impact Policyholders?
At present, the 18% GST applied to insurance premiums significantly increases the cost for policyholders. For example, Ajit Jha, a financial influencer, revealed that his annual insurance premium jumped from ₹23,000 to ₹30,000 within a year, with ₹5,467 solely attributed to GST. Jha’s experience reflects a broader sentiment shared by many policyholders who feel trapped by these high rates.
In his social media post, Jha labeled the charges as “terror,” questioning how average citizens are expected to cope with such financial burdens. This sentiment resonates with others, many of whom are now demanding a reduction or complete removal of the GST on insurance premiums.
What Are Experts Saying About the GST Burden?
Experts have pointed out that the high GST on insurance premiums discourages policy renewals and deters potential customers from opting for coverage. Rajiv Gupta, President of PB Fintech, stated, “The 18% GST on premiums acts as a deterrent. Lowering the rate will make insurance products more affordable, directly benefiting policyholders.”
Niraj Shah, CFO of HDFC Life Insurance, echoed similar concerns. He emphasized the need for a balanced input tax credit system to ensure any GST reduction benefits customers rather than increasing costs for insurance companies.
What Is the Demand for GST Reduction on Premiums?
The demand to reduce or eliminate the 18% GST has gained momentum, with Union Minister Nitin Gadkari’s support adding optimism. If approved, a reduced GST rate could make insurance products significantly more affordable, increasing their accessibility and addressing the country’s underinsurance problem.
However, there are challenges:
- Government Revenue: Over ₹16,000 crores was collected through GST on insurance premiums in 2023-24. Reducing this rate would impact government finances.
- Insurance Companies’ Costs: Companies seek clarity on whether they would still be eligible for input tax credits if the GST rate is reduced.
What Could Be the Impact of GST Reduction?
A cut in GST rates would:
- Reduce Costs for Policyholders: Making life and health insurance premiums more affordable.
- Boost Financial Inclusion: Encourage more people to purchase insurance, especially in underinsured rural areas.
- Align with Global Practices: Harmonize India’s tax structure with international norms for insurance products.
However, experts warn that without input tax credit assurances, insurers might transfer additional costs to customers, negating the intended benefit of lower GST rates.
Will the Upcoming Budget Announce GST Reforms?
The insurance sector is optimistic about receiving reforms in the upcoming Budget. The recent 55th GST Council meeting deferred the decision to reduce GST on premiums, but industry insiders anticipate some announcement or clarification soon.
Frequently Asked Questions
What is the GST rate on life and health insurance premiums?
The current GST rate is 18%, significantly adding to the cost of premiums.
Why are policyholders demanding a GST reduction?
High GST rates make insurance premiums unaffordable for many, discouraging renewals and new policy purchases.
How much GST was collected on insurance in 2023-24?
The government collected over ₹16,000 crores in GST on insurance policies during the financial year.
Will reducing GST lower insurance premiums?
If the GST rate is reduced and insurers are assured input tax credits, premiums could become more affordable for customers.
What challenges do insurers face with a GST reduction?
Insurers are concerned about potential cost burdens if input tax credits are not aligned with reduced GST rates.
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