GST Rate Rationalisation May Drive Growth in Life and Health Policies

Amid muted insurance penetration, the rationalisation of goods and services tax (GST) rates is expected to boost sales of life and health insurance among price-sensitive customer segments by making policies more affordable.

- AATHIRA VARIER

According to the Insurance Regulatory and Development Authority of India's annual report, insurance penetration in India stood at 3.7 per cent in 2023-24 (FY24), down from 4 per cent a year earlier. Non-life insurance penetration remained flat at 1 per cent, while life insurance penetration increased slightly to 3 per cent from 2.8 per cent. Growth in health insurance has been constrained by affordability concerns amid high medical inflation.

Industry experts noted that the successful implementation of a zero per cent GST would also depend on the treatment of input tax credit (ITC) for insurers. A Group of Ministers has recommended completely removing the 18 per cent GST currently charged on insurance.

Currently, insurers can claim ITC on costs for reinsurance, commissions, third-party administrator services, and other operational expenses. If insurance is exempted from GST, ITC will no longer be available, potentially increasing costs for insurers. Industry sources estimate that insurers offset 8-10 per cent of premium costs through ITC.