Those paying insurance premiums may soon see a reduction in their costs across the life and health categories with the sector regulator reportedly proposing a cut in tax rates.According to officials, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed to the Union Ministry of Finance that the Goods and Services Tax (GST) on insurance premium payments be reduced from 18 per cent to 5 per cent.
This has been a request that has been repeatedly set forth by the industry, whose representatives note that insurance penetration is still very low in the Indian market and lowering the costs associated with insurance products would significantly boost adoption.
The time is also ripe for such a boost, they add, noting that the coronavirus pandemic has resulted in a sharp rise in the number of people picking up insurance policies—despite the hassles posed by the lockdown—and a rate cut would go a long way in adding to the trend. However, any decision on GST rate cuts are only taken at the GST Council, which is a Centre-States federal decision making body which decides on how to revise the tax rate structure.
The Council is next set to meet on September 19, but a tax cut in the current scenario may be a tough call to make for the entity. Multiple lockdowns and rising infections have eroded the government’s tax revenues to a large extent, both at the Central and state levels. With the government staring at a huge tax shortfall and having already asked states to borrow on the market to make up for the gap in compensation cess collections, a tax cut may be an unlikely decision at the next meeting.
According to officials, the IRDAI’s proposal is not the first time it has made such a request. The organisation has pitched for a reduction in tax rates to 5 per cent from the current 18 per cent several times over the past few years. A proposal is accepted by the GST Council only after the nominated fitment committee takes it up, conducts detailed consultations and analyses, and submits its recommendations.