GST cut on insurance: What it means for premiums, renewals and returns

With insurers losing input tax credit, the potential premium relief passed on to customers could still be limited

- Aprajita Sharma

The long-awaited tax relief for retail insurance policyholders is here. With effect from 22 September, the government has exempted retail health and life insurance policies, as well as reinsurance, from goods and services tax (GST). These products earlier attracted 18% GST, barring a few. Does this mean premiums will drop by 18%? Not exactly.

Insurers will no longer be able to claim input tax credit (ITC) on their administrative, operational, and distribution expenses. The extent to which this cost will be absorbed or passed on depends on each insurer's margins and business mix.

Many policyholders are weighing their options. Should they defer premium payments until 22 September to take advantage of the GST benefit? Will those who have already paid multi-year premiums be eligible for a refund? Mint decodes the implications from a policyholder perspective.

Delay premium payments?

Policyholders who paid multi-year premiums upfront are unlikely to get the GST benefit retrospectively, though the final outcome will depend on the government's official notification, say industry executives.

"For multi-year policies, the premium gets charged upfront along with GST. The law requires insurers to deposit GST at the rate applicable on the date of premium receipt," says Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.

"Since a 'nil' rate was not applicable back then, retrospective benefit does not apply. That said, we will follow the official notification closely, and any mandated benefit will be duly passed on to policyholders."

For those whose policy renewals are due before 22 September, waiting to pay the premium later to claim the benefit will not work either. GST relief applies only if the renewal date itself falls on or after September 22.