New Delhi: The Central Board of Indirect Taxes and Customs (CBIC) will be engaging with the insurance industry to work out a transition mechanism for the accumulated input tax credit (ITC) of those policies which have been exempted from tax with effect from September 22, Finance Minister Nirmala Sitharaman has said.
The GST Council, comprising the Centre and states, in its meeting last week, decided to exempt GST on premiums paid on individual life and health insurance policies with effect from September 22.
Currently, 18 per cent GST is levied on premium payments for such policies.
In a FAQ issued after the Council meeting, the CBIC had said that businesses whose outward supply has been exempted after the GST rate rationalisation will have to reverse their ITC, which is accumulated in their ledger.
Private sector health and life insurance companies have expressed concern that the reversal of the ITC would impact their finances.
When asked whether the government is working on a transition mechanism in such cases, Sitharaman said, “Yes, the board will be talking to the interested stakeholders and see how their transitional arrangement can be made.”
Asked if it would come in before September 22, the Minister said it would also depend on industry engagement with the board. “Ideally, it should be done before September 22,” she said.
The GST Council has approved a two-tier GST structure with rates of 5 per cent and 18 per cent for most goods and services and a special rate of 40 per cent for tobacco and related products as well as ultra-luxury items.
The new rates will be effective September 22, barring tobacco and associated products, will continue to be taxed at 28 per cent plus a compensation cess till December 31.
As part of the rationalisation, GST has been exempted on individual life insurance, including term, ULIP, and endowment plans and reinsurance services. Currently, premium payment on such policies attracts 18 per cent tax.
Currently, GST is levied in the slabs of 5, 12, 18 and 28 per cent.
The government has collected Rs 16,398 crore from goods and services tax (GST) levied on healthcare and life insurance in FY24.
Of this, Rs 8,135 crore came from life insurance and Rs 8,263 crore from health insurance. Additionally, Rs 2,045 crore was also raised as GST from re-insurance on life and health insurance last fiscal, including Rs 561 crore from reinsurance on life and Rs 1,484 crore on health care.
GST on healthcare and life insurance services brought in Rs 16,770 crore in FY23, including Rs 9,132 crore from life insurance and Rs 7,638 crore from healthcare insurance.
