Why life insurers oppose removing GST on term plans

#LifeInsurers Opposing #GST Removal on #TermPolicies!
At first glance, it seems puzzling: Why would life insurance companies oppose removing GST on term policies? After all, reducing GST would make policies more affordable, expand the market, and benefit everyone, right?

The Catch: Input Tax Credit (ITC)
When insurance companies deposit GST with the government, they can also claim Input Tax Credit (ITC), which is estimated to offset around 11% of their costs. If GST is removed entirely, insurers lose the ability to recover ITC, which is why they’re resisting the proposal.

Insurers are advocating for a more neutral GST rate of 12%, instead of the current 18%. This would reduce the cost for customers, and insurers would also be able to recover ITC.

For those hoping for an 18% reduction in premiums, the savings in reality could be only marginal!
Alternatively, the GST council can make GST zero and earn brownie points, happily passing the burnt of not passing the whole benefit to the life insurers. They can even set up a committee to show they are taking some action against Insurers, by the time the report is out, everyone would forget!

A Better Solution?
What if the GST council adopts a model similar to restaurants—a flat 5% GST without ITC? This could lead to lower premiums, encouraging more people to buy term policies. With a larger market size, insurers could achieve economies of scale, potentially balancing out their costs.
A win-win for both insurers and customers.

How do you think this drama will unfold? Will the government go for zero GST and claim the spotlight, or will they settle for a middle-ground solution that keeps everyone moderately satisfied or best maintains the status quo!

Previous posts on the GST on Insurance Premiums can be checked here -
https://lnkd.in/gcNyWf4R