As per the CRISIL’s report(October 2015), the insurance
industry of India consists of around 52 insurance companies of which 24 are
life insurance and 24 are engaged in non-life insurance companies. India’s Life
insurance sector recorded a new premium income of Rs. 1.38 trillion for the
period April 2015 to March 2016 indicating a growth rate of 22.5 percent. The
insurance sector is likely to grow with the seventh pay commission due to
income in hands of people but the question lies here that with the introduction
of GST in taxation regime will bring positive or negative impact on the
insurance industry.
The introduction of GST in taxation regime in India will
bring a significant change in the hands of common man. The service sector will
be more affected than any other sector. As a result if you are paying heavy
insurance premiums, be prepared for the new taxation structure as it will cost
you more as tax rate may rise to 18%(as per the rumors). So, if your premium is
currently Rs. 1,000, you may have to pay Rs. 20-30 more.
Present Scenario of
Taxation in Insurance
The insurance plans are bifurcated into two parts i.e.
protection and investment. The service tax is levied on the basis of the
insurance plan. Have a look at this table for your reference:
|
Category
|
Service tax
rate as on date 01.06.2016(%)
|
|
Term
insurance premium
|
15
|
|
ULIP
charges
|
15
|
|
Health
Insurance
|
15
|
|
Annuity
: Single Premium
|
1.5
|
|
Endowment:
First year premium
|
3.75
|
|
Endowment:
Renewal premium
|
1.875
|
Scenario after
implementation of GST
With the arrival of GST the Insurance Industry will have a
negative impact as the cost of premiums will rise due to increase in tax rate
from 15% to 18% in case of term insurance plans, ULIPS, health insurance or
motor vehicle insurance. The annuity may rise from 1.5% to 1.8% and Endowments
premium for first year plan from 3.75% to 4.5% and renewal plan from 1.875% to
2.25%. This change will bring hike upto 300 basis points more in taxes. (1 Base
point is equal to one hundredth of a percentage point).
Though the taxation cost will increase with the
implementation of GST, but this change may bring down the overall compliance
cost as the number of taxes which are part of the premium will merge into one
tax. As per the Model GST Law, Input tax Credit shall not be available for life
insurance, health insurance when such services are used primarily for personal
use or consumption of any employee.
Place of supply for Insurance services as per Model GST Law
·
Location
of such registered person (i.e. client) for insurance services
·
Location
of the service recipient (who is a non-registered person) on the records of the
supply of services.
From this we can conclude that it will be a determing factor
for the insurance company to identify whether the recipient is registered or
not.
Insurance Industry is currently facing many challenges,
though it has grown in 2016 but compared to earlier years it has shown a
decline. The Model GST Law has not defined any particular rate or any
provisions related to insurance sector, the exact position will be determined
only after the arrival of the GST Act. So let us see how this will impact the
Insurance Industry in the near future.
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