India: GST Council Mulls 5% Tax on Life and Health Insurance
New Delhi, India – The Goods and Services Tax (GST) Council is contemplating a reduction in the GST rates applied to premiums for life and health insurance. Instead of a complete exemption, the Council is considering a rate cut, potentially setting the tax at 5%.
Currently, insurance premiums are taxed at 18%. According to sources, the Council’s discussion involves lowering this rate, while still allowing insurers to claim input tax credits. This approach is favored by members of the Group of Ministers (GoM) who are reviewing the tax structure. They have cautioned that a full exemption could paradoxically raise costs because of unclaimed input taxes.
However, some within the insurance industry express concerns. They argue that even a 5% rate might lead to unused tax credits. Their preferred solution is a 12% GST rate on output, which they believe would ensure better credit utilization.
Financial Express India reported a comment from a GoM member: “We are not in favour of completely exempting life and health insurance premia from GST but wish to reduce the rates. We have finalised our report… now it’s up to the Council to decide.”
The GST Council is preparing to convene in April or May to discuss the matter. The council will review a report prepared by the Insurance Regulatory and Development Authority of India (IRDAI), focusing on the taxation of insurance premiums. The final decision is expected to impact the cost and structure of insurance products in India.
