Insurance companies have approached the GST council seeking reduction in GST rates in a phased manner, beginning with a reduction of levies on life insurance, followed by health insurance, reported CNBC-TV18. As per the report, insurance companies have submitted a detailed representation seeking a reduction in GST rates on life insurance products from the current 18% to 12%.
GST rate cut demand
The insurance companies have cited the high GST rate as one of the reasons for people to opt out of life insurance and go for alternatives. As per CNBC-TV18, they also added that with premiums and products becoming more costly government’s agenda to push inclusive growth and have an insured society is getting defeated.
Following a reduction in life insurance GST, the insurers are also demanding a similar reduction from the current 18% to 12% on health insurance.
As per CNBC-TV18, the new government, after assuming office, could take this representation to the GST council for a detailed deliberation. Once the 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 Abhishek A Rastogi, founder of Rastogi Chambers, who had filed writs even for rate disparities told CNBC-TV18 that the reduction of the rate from 18% to 12% may not be a pragmatic solution. “The feasible approach would be the rate rationalisation for 12% and 18% rate structures, and the GST Council would certainly have this as an agenda point when it meets next,” Rastogi told the news outlet.
“For the long-term insurance policies that overlapped from the pre-GST regime to the GST regime, there has not been any reduction in the insurance premium that has been charged by the insurance companies to the customers,” added Rastogi.
He further went on to suggest that the insurance companies must first look at the benefit, which should have been passed.
Clarity on co-insurance GST
Along with the demand to cut GST rate, the insurance companies have also sought clarity on the applicability of GST to co-insurance. The companies have also asked the council to consider the removal of GST on outsourcing or sharing the insurance burden by one company with another under sub-contracting.
Co-insurance/re-insurance is a common insurance practice in which the insurers transfer a portion of risk to reinsurance companies for a certain amount called the ceding premium.
Reinsurance companies, or reinsurers, are companies that provide insurance to insurance companies. Reinsurers play a major role for insurance companies as they allow the latter to help transfer risk, reduce capital requirements, and lower claimant payouts.
Ceding Premium is the amount of premium that the ceding company pays to the reinsurer for transferring a portion of the risk.
After assessing the risk, the re-insurers allow a discount to the insurance company from the value of the ceding premium. This discount is called the re-insurance commission. Recently, the Directorate General of GST Intelligence (DGGI) raised an issue with general insurance companies alleging that the amount represented as reinsurance commission is a consideration that is liable to GST.
However, insurance firms believe that the council 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.
Another layer of obscurity related to co-insurance is that it involves multiple insurance companies coming together for the purpose of underwriting a common risk. However as per a person quoted by CNBC-TV18, 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.
As per CNBC-TV18, 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
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