The Goods and Services Tax Council on Friday said that the financial services shall attract tax @ 18%. This said insurance sector that is part of the financial services industry will attract tax of 18% which will have a direct bearing on the premium amount paid for the insurance policies.
At present a tax of approximately 15% is levied on insurance premiums which also include service tax and cess. The industry officials commented that this increase in tax rate shall be henceforth passed on to consumers.
Managing Director & CEO of HDFC Life, Amitabh Chaudhry said that rate of 18% means customers would have to bear the extra cost due to additional tax. The representatives from the insurance sector and Life Insurance Council approached the GST council previously to mull the lowest tax rate of 5% for the sector but the finance ministry declined their proposal.
Now with the uniform tax rate of 18% across financial services industry, LIC which has a maximum market share in the insurance sector will be severely impacted as the rate hike would be transferred to customers on an immediate basis.
The industry body was expecting that payment made via digital mode shall attract lower tax rate under the new tax regime but the two-day GST meet made no announcements on this.
Until now differential tax rate applies on insurance depending on the product type, premium payment term as well as the insurance policy is a life insurance or a general insurance product.
The higher premium rates shall apply for all the policies bought or renewed after July 1. Experts view the GST rate of 18% on the life insurance industry as something unfavorable.S Prakash, Senior Executive Director of Star Health Insurance said "Health insurance is no more a business proposition - it is a social necessity. An attractive GST would have further influenced insurance penetration but the industry is still geared up to take the growth further with rise in life expectancy, per capita income, financial literacy and medical advancement in India".