MUMBAI: The insurance sector has welcomed the government decision to completely exempt individual life and health policies from 18% GST, despite opposing the plan earlier citing loss of input tax credit. They said the move will deepen penetration in both the segments and help make the target of insurance for all by 2047 more achievable primarily because of better affordability.
As part of rationalizing the indirect tax regime by making it simpler and easier to comply with, and also to boost the long-missing link of the consumption cog in the growth story, the GST Council unanimously agreed to slash the five-rate regime to three with massive rate reductions. By doing away with the 12% and 28% rates, the Council has reduced tax rates on most items to 5%, and those earlier in the 28% to 18%, but kept the levy on sin goods at a higher 40% sans new cesses.
When it comes to the insurance sector, the Council has exempted individual life and health insurance premia from the 18% bracket, effective September 22. This includes term insurance, Ulips and health policies. For term insurance, the exemption can result in notable cost reduction, making them more affordable.
On the other hand, insurers may lose eligibility for input tax credits. For ULIPs, these products contain a significant investment component hence direct impact of exemption may not necessarily bring in reduction of 18% premia.
For the national insurer LIC, which is also keen to enter the health cover segment through a strategic investment, the tax exemption is a double booster. LIC chief executive R Doraiswamy said exempting individual life policies from 18% GST will make “life insurance more affordable to all citizens and help towards meeting the objective of insurance for all by 2047.”
Naveen Chandra Jha, chief executive of SBI General Insurance, said the tax exemption marks a transformative step toward greater affordability and inclusivity as this reform acts as a timely catalyst to strengthen the ecosystem by addressing one of the biggest barriers to quality healthcare affordability.
“Whether it is making life-saving drugs more accessible or lowering the cost of health insurance, the move directly tackles a long-standing challenge and will enable millions of families to take a crucial step toward financial and medical security,” Jha said, adding, “SBI General will be focused will be on leveraging this opportunity to design affordable, accessible, and customer-centric health insurance solutions, while expanding our reach across rural and semi-urban markets.”