General insurers have approached the finance ministry for relief on commissions on health insurance products, which currently attract 18% Goods and Services Tax (GST).
General insurance executives, in a meeting held with the department of financial services on Wednesday, said that since commissions form a procurement cost and are embedded in the overall premium, they too should be exempt similar to the treatment given to reinsurance commissions.
They have also pressed for relief from the removal of input tax credit (ITC) under the new GST regime, where health insurers are also pushing for clarity on the GST exemption, saying the relief applies only to individual health policies and not to group, personal accident or travel covers. That distinction could leave retail health insurers facing a hit from the loss of input tax credit (ITC).
If such relief is not granted, insurers estimate that customers could see premiums rise by ₹3-5 per ₹100 of cover, depending on the policy size. While life insurers face a higher impact given the front-loaded commission structures on long-term policies, general insurers said the burden in health insurance, where payouts to distributors range between 15% and 20% of the ₹40,000-50,000 crore retail market will be large.
This is in line with life insurers demanding relief fearing that the change could saddle the industry with a hit of about ₹15,000 crore. The industry, through the Life Insurance Council, in a meeting held Wednesday, has urged the government to extend the GST exemption granted to life insurance premiums to commissions, sought relief on renewal premiums, which are locked in for decades and cannot be repriced, and a refund or grandfathering of unutilised ITC credits that will no longer be off set post-September 22.
The life insurance industry collected about ₹24,000 crore in GST in FY24, while claiming ITC worth around ₹14,000 crore, official data shows. With ITC scrapped under the new two-rate GST system, the gap translates into a sector-wide hit of about ₹15,000 crore, part of which could flow through to company P&Ls and embedded values.
