Insurance policies, be it life, health or motor will be costlier from April 2017. This is a result of the long-pending Goods and Services Tax (GST) passed in August 2016.The current 15% service tax will increase to 18% and policyholders will have to pay 300 basis points(a basis point is one hundredth of a percentage point) for general insurance products.
Considering the demographic trends, the middle class population will be worst hit as a majority depends on insurance for savings rather than other financial instruments such as stock markets.If industry experts are to be believed, the higher tax rate will negatively impact the already low insurance penetration of 2.6% in 2016.
In addition, the administration processes are expected to be more tedious. According to Naresh Makhijani, the head of financial services in KPMG, “There is greater challenge in complying with the GST laws, deciding on where to pay tax. If the proposal is accepted in one state but the policy is issued from another, where does one pay premium?”
The Life Insurance Council, the body that represents life insurance companies, is currently in talks with the finance ministry.They have asked the ministry to impose GST only on the premium collected for the protection part, that is the life insurance services and to exclude the investment part, as the companies act purely as funds administrator.