No GST ITC benefit on commissions for health, life policies from Sep 22

Insurance companies will not be able to claim input tax credit on GST paid on inputs like commissions and brokerages for individual health and life insurance policies with effect from September 22, the CBIC said on Tuesday.

The Central Board of Indirect Taxes and Customs (CBIC) has issued a set of FAQs clarifying on the taxation of various goods and services when the new GST slabs kick in from September 22. The GST Council in its meeting on September 3 had decided to exempt premium paid on individual health and life insurance policies from GST effective September 22, from the current 18% rate. To a question which input services of insurers are exempt from GST, the CBIC said at present, insurers are availing ITC on many inputs and input services such as commissions, brokerage and reinsurance, etc.

"Out of these input services, reinsurance services will be exempted. Input Tax Credit of other inputs or input services is to be reversed because the output services will be exempted," the CBIC said.

This would mean that taxes paid on inputs like commissions and brokerages in case of individual insurance policies will be a cost to the insurance companies as they will not be able to adjust such taxes.

The CBIC also clarified that hotels supplying units of accommodation which have value less than or equal to Rs 7,500 per unit per day, shall not be able to avail ITC on such units, as the GST rate for such supplies is 5% without ITC. 

‘Pass on GST benefits to policyholders’

The government has directed insurance companies to proactively undertake outreach campaigns to publicise GST reforms and pass on the benefits to policyholders. 

M. Nagaraju, Secretary, Department of Financial Services (DFS), chaired a meeting with senior officials of DFS, IRDAI, CMDs of public sector insurance firms and CEOs of private sector life and non-life insurance firms and officials from Life Insurance Council and General Insurance Council. The secretary highlighted prospective positive impact of the GST reforms in making insurance more affordable and accessible for the common man.