GST and its impact on Insurance | All you need to know.
What is GST?
On 8th August, 2016, The Lok Sabha of India Passed the Bill of GST to bring the revolutionary change in Indirect Taxation system of India.
In case you still don’t know yet, GST is acronym for “Goods and Services Tax” which is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India to replace taxes levied by the central and state governments.
It is set to replace all kinds of Indirect Taxation in India as one. Thus, the saying: “One Nation, One Tax “(Except for Direct Taxes) is becoming reality in India from 1st July, 2017.
GST and its Impact on Insurance Industries:
GST in India is put on 4 tax-slabs – 5%, 12%, 18% and 28% of which Insurance Sector is in receiving end of the 18% tax-slab which will replace the current Service tax on insurance products of 15%.
So, there will be direct raise of 3% taxation (or 300 basis points) on Insurance Products.
Following is the table that compares the new tax rates due to GST on various Insurance Products with the Current ones:
|Type of policy||After GST implementation||Current rate|
|Pure risk insurance/term insurance||18%||15%|
|Annuity: single premium||1.8%||1.5%|
|Endowment policies (1st year)||4.5%||3.75%|
|Endowment policies (2nd year onwards)||2.25%||1.88%|
From the table following Conclusions can be drawn:
- Clearly, due to GST, Cost of Insurance on Premiums paid by Consumers will rise.
- For every Rs 100 paid towards premium which currently attract Rs 15 as service tax will be replaced by Rs 18 as GST under the new tax regime i.e. Rs 3 is the Additional burden to be borne by the Consumers.
- Most hit insurance products due to new tax system will be Term, Health and Motor.
Will this Lead to Decline in Insurance Industries?
“Till there is Risk, there will be Insurance”. A person take an insurance policy to mitigate against the risk of happening of some event where loss would be more than paying the cost of premium.
It might be possible that due to new tax regime, people would be less likely to take new policies until there is some more understandability and knowledge of the same in the market. Some might even evade the premiums of ongoing policies due to more burden of Insurance cost, if they feel their benefit of policies might be becoming less.
But, Premiums can’t be sole consideration for Purchasing of an Insurance Policy. Apart from premiums, a consumer should always look up for the benefits of the policies and its term because if increase in price of premiums was the sole consideration for not purchasing a policy than that person might not have purchased the policy at all at current prices.
Also, to maintain the current Customer base, Insurers can reduce the intermediary cost like commissions or various expenses related to policy because Premium is also priced on the basis of these Expenses.
To sum up, with increase in Premium cost, there will be more competition among the Insurers for providing the best Insurance Policy according to the need of consumer at competitive price, due to which Consumer might stand at benefit in the end. And for the consumer, they should always plan to buy a policy which meets with their Objectives, Budget and Requirements.
What do you think? What changes will GST bring in Insurance Sector in India?