Why LIC seeks rollback of retrospective GST changes
What's the story
The Life Insurance Council and the Life Insurance Corporation of India (LIC) are likely to write to the Ministry of Finance and the Central Board of Indirect Taxes and Customs (CBIC). They will seek relief from recent Goods and Services Tax (GST) changes that have impacted the insurance sector. The main demand is for these GST changes to be made prospective instead of retrospective.
Tax relief
Insurers demand input tax credit on renewal premiums
The insurers are also seeking the right to claim input tax credit (ITC) on renewal premiums. ITC is a facility that enables businesses to adjust GST paid on inputs like reinsurance and commissions against their tax liability. The benefit, which was already included in policy pricing, is now being sought by insurers as part of their demands for GST relief.
Commission exemption
Commission expenses need GST exemption, say insurers
The insurers are also demanding an exemption for commission expenses from GST. Currently, only reinsurance costs are exempt from taxation. However, reinsurance and commissions together account for nearly 90% of total expenses. Taxing commissions creates an inverted duty structure where tax on inputs is higher than tax on the final product, resulting in unclaimed credits and increased costs for insurers.
Market impact
Industry concerns over GST changes
Industry executives have said that a lower GST rate may not necessarily boost demand for insurance. They describe insurance as a "push product" not solely driven by pricing. Analysts predict that health insurers will see higher loss ratios, life insurers will face pressure on new business margins, and aggregators like Policybazaar could be impacted by lower commissions due to these changes.