The Centre may push back against a proposal to give goods and services tax (GST) exemption for certain insurance policies, as it reckons that this would raise the cost of insurers, leading a firming up of premium amounts. However, it will strongly pitch for a major reduction in the GST rates for insurance sector.

This view may be conveyed to the GST Council as it meets next. The Council is likely to consider the report of group of ministers (GoM), which reviewed taxation of health and life insurance premiums in its next session.

Giving health and life insurance premiums a complete exemption from the GST may lead to an increase in their costs, which will be contrary to what the government intends to do, Sanjay Kumar Agarwal, chairman, Central Board of Indirect Taxes and Customs (CBIC) said on Thursday. “A complete exemption will deny the benefit of input tax credit (ITC) to insurance companies, which will be factored into the premiums they charge from people,” Agarwal told FE in an interview. Under the GST laws, ITC benefit is not available for those goods and services which are exempt from the levy of the GST.

“The central government wants to provide relief to insurance holders, but we don’t want any situation where they have to bear higher costs. The Group of Ministers is preparing its report, thereafter the Council will decide, most likely in the next meeting,” said the CBIC Chairman.

The 13-member GoM in its report submitted to the GST Council in December had recommended a GST exemption for premiums paid on pure term life insurance policies which cover family members, and on premiums paid on health insurance policies for senior citizens, above the age of 60.

The GoM had also suggested lowering the GST rate on all individual health insurance policies to 5%, without the option of ITC. Currently, health & life insurance premiums attract 18% GST.

A complete exemption of term-life insurance from GST will cost the exchequer about Rs 200 crore annually, while exempting senior citizens’ health insurance premiums will cost another Rs 3,000 crore, according to sources.

On rate rationalisation, Agarwal said that the six-member GoM concerned is looking at all aspects such as, simplification of rates and raising revenues, and a progress on that front will be made soon.

“In the rate rationalisation exercise, we have to prioritize simplification of rates, to reduce disputes. Currently, multiple rates apply to similar goods, like food items, which result in litigation. This needs to be corrected,” noted Agarwal.

The CBIC Chairman also noted that restructuring of slabs, which was an agenda earlier, may not be considered as of now. “There was thought about it initially, but I am not sure whether it will be feasible to do so right now.”

Official sources had said that some member states of the GST Council are in favour of adopting a three-slab GST structure, from the extant four slab one. However, many states fear loss of revenue, and thus, no decision on that aspect would be taken in the near-term. The four slabs in the GST structure are: 5%, 12%, 18%, and 28%.

Moreover, on the long-pending demand of an amnesty scheme to settle past disputes related to Customs, Agarwal said that it is not on the agenda of the government as of now. “Last time, in 1998, an amnesty scheme for Customs was introduced, but it didn’t find many takers,” noted Agarwal.

“I don’t think the industry is asking for it. I have heard this demand mostly from consulting firms, not from stakeholders,” he said. According to sources, an estimated 30,000 cases are pending in various courts, involving an amount of more than Rs 40,000 crore.

Source: The Financial Express