Insurance Brokers Push for ‘Zero-Rated’ GST to Reclaim ITC
Issue: To seek a major tax policy change where the zero-rated status is applied to the insurance sector instead of the current exempt status, allowing insurers and intermediaries to recover Input Tax Credit (ITC) on their expenses, which would alleviate pressure on agent commissions and prevent future premium hikes.
Facts:
- The GST 2.0 rationalization exempted retail term and health insurance from the 18% GST to make products more affordable.
- However, this exemption simultaneously blocked the ability of insurers and intermediaries to claim ITC on GST paid on their input expenses, such as brokerage, office rent, and advertising.
- Insurers reportedly reduced agent commissions by up to 18% to offset this unrecoverable cost, triggering a pushback from the distribution network.
- The Insurance Brokers’ Association of India (IBAI) is preparing to approach the GST Council and the CBIC with a proposal.
Decision:
The Insurance Brokers’ Association of India (IBAI) is seeking a “zero-rate” GST structure for insurance. This structure would mean no GST is charged on the output (premium), but the ITC on inputs can still be claimed.
Key TakeDowns:
- Zero-Rate vs. Exempt: The difference is crucial: Exempt blocks ITC, while Zero-Rate allows ITC to be reclaimed.
- Goal: Alleviate Commission Cuts: The primary objective for brokers is to remove the reason for insurers to reduce commissions, thereby preserving affordability for policyholders and stabilizing the distribution channels.
- Policy Hurdle: Government officials view the issue as a commercial matter outside the GST Council’s purview and warn that extending zero-rated treatment to a domestic sector would require a major policy shift and could impact the delicate Centre-State revenue sharing balance.
- Industry Division: The industry is divided on the proposal, with some insurers wary of countering the government and others skeptical of a favorable outcome.
Source :- Live Mint