In what could be one of the top agenda items that the Union Government might pick up after assuming office after the ongoing general elections, insurance companies have knocked on the doors of the GST Council. These companies are seeking a cut in GST rates in a phased manner, beginning with a reduction of levies on life insurance, followed by health insurance.

According to sources, insurance companies have submitted a detailed representation seeking a reduction in GST rates on life insurance products from the current 18% to 12%, citing that high rates are pushing people to opt out of life insurance and go for alternatives. The government’s agenda to push inclusive growth and have an insured society is getting defeated, with premiums and products becoming more costly, they added.

The insurers are also demanding a similar reduction from the current 18% to 12% on health insurance, following the reduction in life insurance.

Apart from this, the insurers have also asked the GST council for clarity on the applicability of GST to co-insurance. While seeking clarity, insurance companies are asking the council to consider the removal of GST on outsourcing or sharing the insurance burden by one company with another under sub-contracting.

“Insurance companies have sought urgent intervention from the government, and it is likely that the new government, after assuming office, could take this representation to the GST council for a detailed deliberation,” sources in the know added.

If these proposals are considered, they will have to be cleared by the GST council-nominated law committee, fitment committee, and officers before the council takes them up formally.

Meanwhile, CNBC TV-18 has reached out to the Finance Ministry seeking a response on the proposals sent by the insurance sector and is awaiting responses.

Insurance companies believe that the DGGI has overlooked the nature of the reinsurance contract, as the discounts given do not entail any service in reciprocity. Further such commissions in the erstwhile service tax regime were not levied on service tax.

Similarly, to explain the issues related to co-insurance, sources say that it involves multiple insurance companies coming together for the purpose of underwriting a common risk. In a co-insurance contract, the insurance policy is issued to the insurer, recognising, inter alia, all insurers with a proportionate share of their respective premiums.

“For administrative convenience, one of them is recognised as the lead insurer who undertakes the administration-related activity and issues the invoice for recovering the full premium,” sources added.

Here too, DGGI investigations held that sharing premiums between the leader and other insurance companies amounts to supply and demand tax from the insurance companies. On this issue as well, during the service tax regime, no tax was levied. Further, even if tax is paid by one entity, the other entity is eligible to avail credit, making the whole transaction revenue neutral, according to sources.

Source: CNBC TV-18