Health and life insurance companies are unlikely to get relief from the government regarding their request for input tax credit (ITC) on exempted items under the GST. Chairman of the Central Board of Indirect Taxes and Customs (CBIC) Sanjay Kumar Agarwal told TNIE that there would be no structural changes to address the concerns of health and life insurers.
Agarwal ruled out allowing ITC benefits on the newly exempted services, stating that insurers would have to manage the impact themselves. "Either they will absorb it or they will pass it on to the customers or policyholders," he said. However, he argued that even without ITC, policyholders would still see significant savings on their premiums.
To illustrate his point, Agarwal explained, "If the base premium is Rs 10,000, GST at 18% earlier made it Rs 11,800. Now, GST is exempt, so the base remains Rs 10,000. Even if companies have input tax credit costs (say Rs 500), the final cost may rise slightly to Rs 10,500 — but it is still lower than Rs 11,800, saving policyholders Rs 1,300."
According to Agarwal, insurance companies are requesting an exemption for commission agent services and all other services they use, but this is not possible. He insisted, however, that a major reduction in insurance costs would occur after the rate cut.
The GST Council recently removed the 18% GST on premiums for individual health and life insurance. This decision, however, resulted in the denial of ITC benefits to insurance companies, as GST rules do not allow input credit on exempted items.
Under GST 2.0, the CBIC has clarified that businesses in sectors like insurance, whose services have been exempted after rationalization, must reverse any accumulated ITC "for supplies made on or after 22nd September, 2025, when the rate change is effected."
The CBIC chairman also clarified that specific services, such as restaurants, which fall under the 5% slab, will continue to operate without ITC.
He hinted that the notification on the proposed changes would be issued in a day or two. Meanwhile, the finance ministry has promised to help the industry transition to the new GST framework, which will take effect from September 22. Finance Minister Nirmala Sitharaman stated that the board would be "talking to the interested stakeholders and see how their transitional arrangement can be made."
She further added that the transitional provisions would likely be ready before September 22.
The GST Council, which includes finance ministers from the Centre and states, approved the overhaul on September 4. The decision created a two-rate structure of 5% and 18%, alongside a special 40% rate applicable to tobacco products and ultra-luxury items. The revised rates will come into effect later this month.