GST: Insurance premium heats up

With the country implementing a new tax regime with the introduction of the Goods and Services Tax (GST), consumers will now have to pay more for insurance premium payments. Most of the financial services will attract a higher tax of 18 percent as against the previous 15 percent under the new indirect tax regime.

Almost all the banks and insurance companies have sent messages and mails to their respective customers about the new tax rates to be charged. “Dear policyholder, revision of service tax on account of GST will come to effect from July 1, 2017,” said a Life Insurance Corporation of India (LIC) message.

Life and non-life premiums will see an increase from 15 percent to 18 percent, according to The Indian Express.

“The Indian insurance industry will face a temporary brunt as GST implementation will certainly impact insurers as well as individual policyholders. Typically, a policyholder pays a service tax on the risk element of the premium component while the investment element is usually out of the service tax scope. With the implementation of GST, life insurance policies will become dearer by three percent. However, the amount of service tax will vary depending on the risk element embedded in the premium component and tax will be levied only on the risk portion of the premium and not on the saving portion. Therefore, the immediate impact of GST would be higher in term insurance and endowments plans,” wrote Rajiv Kumar, MD and CEO, Universal Sompo General Insurance in a Business Standard report.

For general insurance products, the cost of purchasing policies will undoubtedly increase due to a three percent rise in service tax from the current 15 percent to 18 percent.

Health and auto insurance policies will also become expensive. Moreover, input tax credit is not allowed for health and life insurance although the government makes it obligatory for employers to provide it to its employees, he explained.