Rethinking GST(Goods and Services tax): A Case for Zero GST on Insurance premiums. ▪️

 

The ongoing discussion regarding making Goods and Services Tax (GST) nil, on insurance premiums, has garnered significant attention. While many have welcomed the proposal, some argue against it, citing the loss of Input Tax Credit (ITC). This article explores the implications of this policy change and presents a case for a zero-GST regime on insurance premiums.
 💠 The Principle of GST on Insurance
Insurance is a fundamental need and a crucial social security measure. It should be exempt from GST. While a zero-GST rate would mean the unavailability of ITC for insurers, some believe this could lead to increased premiums. To assess this claim, i have performed broad-level calculations based on publically available data, to estimate the potential impact on customer costs under different scenarios.
💠 Analysis of Scenarios
To understand the financial implications, let's consider three distinct cases, using a current premium of ₹1,000 for a health insurance policy.Calculations should be considered broad probable estimates, not exact figures .
▪️ Case 1: Current Scenario (18% GST)
In the current setup, customers bear a substantial tax burden.
Premium: ₹1,000
GST @ 18%: ₹180
Total Customer Cost: ₹1,180
▪️ Case 2: Zero GST and no ITC
This scenario assumes Zero GST on insurance premiums and non availability of ITC for the insurer. The key consideration here is the potential for insurers to pass on the lost ITC as an additional cost to the customer. Based on my analysis, this loading could be approximately 3.31% of the premium.
Premium: ₹1,000
Additional Loading (due to no ITC): ₹33.33
Total Customer Cost: ₹1,033.33
This option transparently reflects the true cost while upholding the principle that a social security product should not be taxed.
▪️ Case 3: -5% GST with ITC
This scenario considers situation where insurance premiums would be subject to a 5% GST, with insurers retaining the ability to claim ITC. with nil impact on cost because of Overall reduced GST.
Premium: ₹1,000
Revised GST @ 5%: ₹50
Total Customer Cost: ₹1,050
▪️ Conclusion
Based on this analysis, the zero-GST and no-ITC option (Case 2) appears beneficial for the customer. It results in the lowest overall cost, reducing the financial burden and even outperforming the 5% GST option. This approach not only provides the greatest economic advantage to consumers but also aligns with the fundamental principle that essential social security measures should remain tax-free. By making insurance more affordable, a zero-GST policy could enhance financial inclusion and promote greater access to critical protection for all citizens.
Disclaimer: This analysis is based on a simplified model and certain assumptions for analysis of publicly available data.This is for general understanding. The actual financial impacts may differ.
GST Insurance FinancialLiteracy AshwaniSpeak AshwaniThink
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