Recently, there was a lot of discussion in the media and other platforms that, as of the 22nd of the month, the GST rate on life insurance and health insurance policies would be reduced from 18% to 0%. It was believed that the insurance premium would become cheaper by 18%. But now a report has come out, which has dashed this hope. According to this report, instead of getting cheaper, the premium may become costlier by 3 to 5 percent. This decision can prove to be a big setback for the common man.
Why can the premium become expensive
A report by Kotak Institutional Equities Research has raised concerns in this matter. According to the report, insurance companies can increase their rates by 3 to 5 percent to compensate for the loss of not getting the benefit of input tax credit (ITC).
In fact, currently, insurance companies do not deposit the entire 18% of 18% GST they collect from the customers to the government. They take advantage of the input tax credit (ITC) from this. ITC is a type of tax exemption that companies claim on their operational expenses, such as distributors’ commission, reinsurance, and tax on advertising. This saves them crores of rupees every year.
Government decision
In the GST Council meeting, it was agreed to reduce the GST rate on life and health insurance premiums from 18% to 0%. The purpose of this decision was to make insurance accessible to more and more people. But now it is believed that if GST is abolished, then companies will not get the benefit of ITC.
The report says, “According to a rough estimate, health insurance companies may have to increase their rates by 3-5%.” With this increase, they will be able to compensate for the loss of ITC, and their margin will not be affected.
Possibility of an increase in demand
The report also said that even if the premium becomes expensive by 3 to 5 percent, the total reduction of 12-15% (including 0% GST and a 3-5% increase) may increase the demand for health insurance. This move of the government will reduce the cost of insurance companies, but the premiums are likely to become expensive for the customers.
