The Life Insurance Council, the apex industry body of life insurers, on Friday met representatives of 17-18 life insurance companies to discuss the impact of the Good and Services Tax (GST) on the sector.
It was decided in the meeting that the life insurance industry will urge the government to levy the ‘merit rate’ instead of the standard rate.
V Manickam, secretary general of the Life Insurance Council, said, “In the meeting it was decided that accounting firm KPMG will prepare a note on the issue, and later we will invite suggestions from the life insurance industry on the same. It was also decided that we will ask for ‘merit rate’ for life insurers, as the industry serves a large economic role within the economy and supports almost all natures of economic activity across all denominations and the geographical expansion of the nation.”
Currently, the service tax is levied at 3.5% for traditional /conventional policies and 15% on term plans, which are purely protection plans.
Senior officials in the industry said the new service tax rate is anticipated to be fixed at 18% under the GST, which could increase the cost of insurance. Even service tax of 15% is payable on premium amount (excluding the investment amount) for unit-linked insurance plans.
“We were earlier for zero percent tax on insurance, but now we have decided that the government should consider our request for ‘merit rate’. The life insurance industry is one of the biggest investors in both state and government securities, and we hope that the government will look into the matter,” said Manickam.
Officials in the industry say by the end of this month, they would give all the required suggestions to the finance ministry on the issue.
“If rates are kept at 18%, it will have a negative impact on the insurance business as cost of premiums will go up. Already, insurance penetration is low compared to other economies, and this high rate will further keep away investors from investing in insurance,” said the CEO of a mid-sized insurance company who was present at the meeting.
The insurance industry is also contemplating to ask for special category for micro-insurance policies as these are created with the intention to promote insurance coverage among economically backward sections of the society.
Currently, life insurance services under micro-insurance with a life cover up to Rs 50,000 are exempt from the service tax. Industry officials also say they will request the government on exempting rural insurance from the GST.