ITC Removal Blunts Impact of GST Waiver on Insurance

With the goods and services tax (GST) on individual health and life insurance premiums now fully exempted — down from 18 per cent earlier with input tax credit (ITC) — policyholders are expected to benefit from lower premiums.

- SUBRATA PANDA & AATHIRA VARIER

However, insurers are unlikely to pass on the entire benefit, as the withdrawal of ITC will increase costs, weighing down on margins.

The GST Council on Wednesday exempted GST on all individual life insurance policies — including term life, unit-linked (Ulip), and endowment policies, as well as reinsurance — in a move aimed at making insurance more affordable and expanding coverage across the country.

Similarly, all individual health insurance policies (including family floater and senior citizen plans) and their reinsurance have been exempted to widen insurance penetration.

Suresh Ganapathy, managing director (MD) and head of financial services research at Macquarie Capital, said reducing GST to zero could turn negative if ITC benefits are not restored. "Acquisition costs are high for health insurance policies. In both health and life insurance, companies will have to decide how much of the hit they can absorb and how much to pass on to distribution partners and customers," he said.