Insurance buyers may not get full GST benefit

While insurers will continue to pay GST on inputs sourced for selling policies, they are not eligible to claim ITC

- BENN KOCHUVEEDAN@ MUMBAI

LIKE budgets and tax proposals, the devil is in details even in the GST Council decision to completely exempt—against strong push back from the industry—individual life and health policies from 18% GST from the mid-night of September 21. Because the facts on the ground are not as simple as the government headlines want us to believe. This is so because, the exemption is an additional cost on insurers as with no GST on life and health policies, they are not eligible for input tax credit (ITC), which is about 3.4% of the price of a policy.

In simple terms, under GST provisions, a product or service provider can claim ITC only if there is a tax component in final product. The problem with no GST is that while an insurer will continue to pay GST on all inputs sourced for making and selling a life/ health policy, the firm is not collecting GST on final product and thus not eligible to claim ITC for GST paid in purchasing goods/services to carry out her business.