GoM doubts cos will pass GST cut benefit on insurance premiums - govt source
Informist, Friday, Oct. 4, 2024
By Priyasmita Dutta and Sagar Sen
NEW DELHI – The Group of Ministers tasked with examining the case for reducing the Goods and Services Tax on insurance products is considering such a move, but is worried whether companies will actually pass on lower prices to consumers, a senior finance ministry official said.
In its last meeting on Sept. 9, the GST Council said a 13-member Group of Ministers would look into the possibility of cutting the tax rate on life and health insurance premiums from the current 18?ter demands from various quarters that these premiums should not attract any tax. According to the finance ministry source, there is consensus within the Group of Ministers that GST on health and life insurance premiums should be removed.
"There are a few options that the Group of Ministers will look into while analysing the issue. One of the options being looked at will be completely removing GST on health insurance and life insurance," the official told Informist.
The Group of Ministers is headed by Bihar Deputy Chief Minister Samrat Choudhary, and includes ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka, Kerala, Andhra Pradesh, Gujarat, Punjab, Tamil Nadu, and Telangana. The chief ministers of Goa and Meghalaya are also part of the group, which will meet next on Oct. 19 and submit its report by the end of October.
PASSING THE PRICE CUT
According to the official, there have been occasions in the past when cuts in tax rates announced by the GST Council have not been passed on the consumers of those goods and services. Instead, companies increased their profit margins. In November 2017, after the council reduced GST rates on restaurants to 5% from 18% and 12%, anti-profiteering investigations were initiated against some of them for allegedly not passing on the benefit of reduced taxes to customers.
Though insurance products are homogenous, companies perform their own underwriting and product design, with pricing done accordingly. As such, even if GST rates are cut, companies can tweak the base price of insurance policies so that the ultimate cost for policyholders is unchanged.
"Another option in front of the panel is to reduce the GST rate on life insurance and health insurance to the lowest tax slab of 5%. But this will only have a marginal impact on the ultimate price of the insurance policies," the official added.
According to Saloni Roy, a tax partner at Deloitte India, if the GST rate on health and life insurance is reduced from 18% to 5% without the benefit of input tax credit, it could result in building up of input tax credit at insurers' end. This, Roy said, "may not help the ultimate customers in terms of a substantial price cut".
Further, the Group of Ministers may also have to weigh the GST Council's decision to bar the filing of anti-profiteering cases after the end of the current financial year. This sunset clause will give businesses freedom to set prices without the fear of being investigated for being in breach of anti-profiteering provisions. In such an environment, it may be difficult to ensure that any tax cuts are passed on to consumers.
Ministers are also likely to look into the possibility of cutting GST on insurance premiums for senior citizens, according to the official. However, the official said this will "barely (make) any difference" as the pool of senior citizens paying insurance premiums is "very small". End
