Insurance industry is expected to come under the 12 per cent tax slab in the Goods and Services Tax (GST) regime that will be implemented from April 1, 2017. Currently, a service tax of 14 per cent is imposed.
Sources said that insurance services are likely to be out in the 12 per cent slab, even though the industry had sought a slab of 5 per cent or below, this has not been granted. Further, officials said that insurance being a protection/savings product, it is unlikely that 18 per cent rate will be applicable.
Sachin Menon, Partner and Head, Indirect Tax, KPMG explained that while there is no clarity on the rates, he added that there will not be any additional cess applicable on these services. Here, he said insurance will be classified as a service.
At present, apart from the 14 per cent service tax, Krishi Kalyan Cess and Swachh Bharat Cess is also applicable which makes the total service tax applicable to 15 per cent in products like term insurance, unit-linked insurance plan (Ulip) among others. The service tax rate for other products like annuity in case of single premium policies is at 1.5 per cent approximately.
Insurers, however, do not have any clarity on how the new GST tax structure will be implemented. “Different products attract different rates of service tax. If there is one rate proposed for insurance, the question is whether the lower tax structures for products like annuity will continue,” said the chief executive officer of a private life insurance company.
Further, another area of concern whether the same rates of service tax will be applicable for the government-sponsored insurance schemes like the universal health insurance scheme and the Pradhan Mantri Jan Suraksha insurance schemes. “If it is a one-nation, one-rate system, all insurance products including those with focus on financial inclusion will have to be clubbed under one tax slab. We do not know how this will be done,” said the appointed actuary at a mid-size private life insurer.
In 2014, service tax was made applicable on insurance premiums. Later, in 2015, Finance Minister Arun Jaitley raised the rate of service tax from 12.36 per cent to 14 per cent. Insurance premiums had come under the service tax ambit from 2014 when the government had made changes to the Finance Bill. After this, the service tax impositions were passed on to customers in the form of increased premiums.
This will provide a huge relief to policyholders who pay almost 15 per cent for insurance policies as a part of their total premiums in a year. Hence, if this is reduced to 12 per cent that will be all inclusive, it will mean that insurance premiums will also go down.
Earlier, the insurance industry, especially the largest player Life Insurance Corporation of India (LIC) had expressed their reservations about service tax being imposed on insurance premiums. They wanted insurance premiums to be excluded from the purview of service tax, however their demands were not considered.