Insurance premiums may rise 1-4% despite GST cut to zero

Insurance players might have to hike their premiums after the 56th GST Council, chaired by finance minister Nirmala Sitharaman, slashed tax rates on individual health and life insurance premiums, cutting the tax from 18 percent to zero. While this poses as a benefit for consumers, brokerages argued that uncertainty remains around input tax credit relief for insurers.

The GST on health and life insurance was been a contentious issue for long now, with strong support to reduce the GST rate on these. At the same time central and state governments had feared the loss of revenue from these growing lines, domestic brokerage Emkay Global had noted.

Even as this move 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, the brokerage added.

However, even as the benefits of the GST cuts will be passed down to consumers, brokerages argue that insurers will have to undertake price-hikes to offset the loss of ITC, as insurers will now bear GST on expenses without being able to claim input credit.