Health, life insurance stocks rally as GoM proposes waiver of 18% GST

Currently, 18 percent GST is levied on insurance.

Shares of insurance players saw some cheer in trade on Thursday, August 21, after reports suggested that life and health insurance purchased by individuals may be exempt from the 18 percent Goods and Services Tax (GST) that is currently levied.

The GST Group of Ministers (GoM) on insurance has proposed that health and life insurance premiums be exempted from the levy, in a move aimed at making insurance products more affordable and improving penetration in India’s underinsured market.

The final decision will be taken by the GST Council after broader consultations with states, said Bihar Deputy CM and convener of insurance Samrat Choudhary. However, states raised concerns over the potential loss of revenue from the exemption of insurance from GST.

At 9.20 a.m., shares of SBI Life, HDFC Life, LIC, ICICI Lombard, ICICI Prudential were all trading with gains between one and two percent.

In a note, Emkay Global said, "Even as this GoM recommendation has brought more questions
than answers regarding the breadth of coverage of the products category and the implications for Input Tax Credit (ITC), one thing that is abundantly clear is that prices of Retail Health and Life Insurance products will come down for customers and any benefits from GST cuts must be passed by insurers to customers."

On a relative basis, SBI Life appears to be in a beneficial position, given its relatively lower cost structure vs peers. Overall, improving affordability of Life and Health products provides growth tailwinds to the sector, added the brokerage.

The move to slash GST on insurance products following Prime Minister Modi’s Independence Day speech, wherein he announced the rollout of GST 2.0 just ahead of Diwali. GST may be rationalised into two major slabs: five percent and 18 percent, according to most reports, with a sin tax rate of 40 percent.

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