Good news for everyone with life and health insurance, as your insurance premiums have gotten cheaper from today. The 18 per cent Goods and Services Tax (GST) on these policies has been completely removed as part of the new GST 2.0 reforms. This change means all individual health insurance plans, including family floater policies, those for senior citizens, and reinsurance, are now exempt from GST.
What Does The GST Exemption Entail?
Previously, insurance premiums attracted an 18 per cent GST. According to CA Ruchika Bhagat, MD, Neeraj Bhagat & CO., with the new exemption, policyholders will no longer pay this additional tax. For instance, a health insurance policy with an annual premium of Rs 10,000 would previously cost Rs 11,800 (including Rs 1,800 GST). Post-exemption, the cost reduces to Rs 10,000, offering a direct saving of Rs 1,800.
Impact on Policyholders
1. Reduced Premium Costs: The primary benefit is the reduction in premium costs, making insurance more affordable for individuals, especially in tier 2 and tier 3 cities. “This is expected to encourage first-time buyers and increase overall insurance penetration,” she said.
2. Enhanced Coverage Options: With lower premiums, policyholders might opt for higher coverage or additional riders, such as critical illness or personal accident covers, thereby enhancing their insurance protection.
Implications for Insurers
1. Loss of Input Tax Credit (ITC): Insurers previously claimed ITC on taxes paid for inputs and services. With the GST exemption, they will no longer receive this credit, potentially increasing operational costs.
2. Margin Pressures: The loss of ITC could compress profit margins, especially for companies with a high volume of retail health business. However, some insurers view this as a manageable challenge, given the broader benefits of increased insurance adoption.
3. Potential Premium Adjustments: To offset the loss of ITC, insurers might consider adjusting premiums. Analysts suggest a possible increase of 1-4% in base premiums for new policies. However, existing policies may not see such adjustments due to regulatory constraints.
“The GST exemption on life and health insurance premiums marks a progressive step towards enhancing insurance accessibility in India. While policyholders stand to benefit from reduced costs and improved coverage options, insurers will need to navigate the challenges posed by the loss of ITC and potential margin pressures. Overall, this reform is expected to foster a more inclusive insurance ecosystem, aligning with the government's vision of 'Health Insurance for All' by 2047,” Bhagat concluded.
