Insurance likely to fall under 12% tax bracket in GST, don't expect 5%, say experts
At present, a service tax of 14 per cent is imposed on insurance policies and there is additional cess including Krishi Kalyan Cess and Swachh Bharat Cess is also applicable which makes the total service tax applicable to 15 per cent for regular premium payment policies.
The insurance industry, which is waiting with baited breath for the tax rates, to be announced for the sector under the Goods and Services Tax (GST) regime, may be in for some disappointment. Sources in the tax consulting space, who have been working closely with the government on this reform, said that the GST Council is not in favour of reducing the rate to 5 percent.
At present, a service tax of 14 percent is imposed on insurance policies and there is additional cess including Krishi Kalyan Cess and Swachh Bharat Cess which makes the total service tax payable at 15 percent for regular premium payment policies.
On one hand, while the rate will not be hiked to 18 percent since both the government and the GST Council are of the view that insurance is a savings/protection product, higher rates will be a deterrent to sale.
“There will be a huge deficit in tax collection if the insurance GST rate is reduced to 5 percent. There is almost a consensus on fixing it at 12 percent,” an official involved in the development said. However, it is not clear if there will be a product-wise differentiation or whether a blanket rate will be applicable.
Once GST comes into force from July 1, 2017, there will be no additional cess applicable on any services. Hence, even if insurance comes within the 12 percent bracket, individuals will effectively be paying a lower amount towards taxation.
Insurance sector sources said that once the new rates are brought into force, they will offer incentives to the customers. So, from July 1 if a customer buys a new product or pays renewal premiums, they will be given a discount based on the type of the product, premium being paid and the duration of the payment.
Clarity is also awaited on the rate of tax under GST to be applicable for government-sponsored insurance schemes like the universal health insurance scheme and the Pradhan Mantri Jan Suraksha insurance schemes. Since the government has talked about a single tax rate for each sector, they may also fall under the 12 percent bracket. Currently, they do not come under the service tax bracket.The GST Council, which has decided rates for almost 98 categories of goods and put them under the four buckets of 5 percent, 12 percent, 18 percent and 28 percent, will decide rates for services today.