Impact of GST on Insurance Sector, GST Impact on Insurance Companies. Indian tax system is going to be encountered with one of the biggest tax reforms, as GST (Goods and Services Tax) will get rolled-out on July1st, 2017. With others, service industry is also under its gambit, one of which is financial services. GST council has set a rate of 18% on financial services industry, which is going to make insurance sector a bit expensive. Being said that, both general and life insurance premiums will climb up by 3% due to increase in tax rate from previous 15% to 18%. All policy holders can expect official notification from their Insured organisation in this regard to make it liable on customers at large.
Impact of GST on Insurance Sector
We can figure it out that ultimate impact is on consumers, so in insurance sector they are policy holders who have to bear this marginal hike of 3%. Habitually, life insurance policies represent two elements, risk cover and savings, so policyholders pay service tax on the risk element of the premium and not on savings, as investment (from savings) element are still kept out of the service tax scope. Let’s analyse its impact on products offers by insurance industryTerm Plan:
Endowment Plan:
These plans are in orthodox in nature offers both death and maturity benefits, whichever happens first. As per existing laws, endowment plan takes a levy of 3.75% service tax on the premium in the first year of the policy and post GST implementation it will raise to 4.5% in first year. From second year onwards as per existing laws, endowment plans attracts levy of 1.875% service tax and post GST implementation it will raise to 2.25% for second year onwards.ULIP:
Below is the list of Service Tax Exemptions to be continued in GST as concluded by GST Council
Services of general insurance business provided under following schemes –
- (a) Hut Insurance Scheme;
- (b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme);
- (c) Scheme for Insurance of Tribals;
- (d) Janata Personal Accident Policy and Gramin Accident Policy;
- (e) Group Personal Accident Policy for Self-Employed Women;
- (f) Agricultural Pumpset and Failed Well Insurance;
- (g) Premia collected on export credit insurance;
- (h) Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;
- (i) Jan Arogya Bima Policy;
- (j) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);
- (k) Pilot Scheme on Seed Crop Insurance;
- (l) Central Sector Scheme on Cattle Insurance;
- (m) Universal Health Insurance Scheme;
- (n) Rashtriya Swasthya Bima Yojana; or
- (o) Coconut Palm Insurance Scheme;
- (p) Pradhan Mantri Suraksha BimaYojna;
- (q) Niramaya Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999); or
- (r) Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.
Services of life insurance business provided under following schemes –
- (a) Janashree Bima Yojana (JBY); or
- (b) Aam Aadmi Bima Yojana (AABY);
- (c) Life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees;
- (d) Varishtha Pension BimaYojana;
- (e) Pradhan Mantri Jeevan Jyoti BimaYojana;
- (f) Pradhan Mantri Jan Dhan Yojana;
- (g) Pradhan Mantri Vaya Vandan Yojana; and
- (h) Any other insurance scheme of the State Government as may be notified by Government of India on the recommendation of GSTC.