There’s been a flurry of activity from the Indian government to reform the indirect tax structure under the overarching Goods and Services Tax regime. The big headline over the weekend was the intention to move to a two-slab structure – a significant simplification.
The latest update is that the group of ministers that met on Wednesday and Thursday are in favour of moving all items to the 5% and 18% slabs. The next step is for the GST Council to clear the recommendations. Once implemented, the move is set to bolster consumption. Amidst this wider reform, a key point of discussion for the group of ministers on Wednesday was the treatment of premiums paid by individuals on health and life insurance. They favoured an exemption from tax in a bid to promote greater adoption of protection.
These premiums currently fall under the 18% slab. The key question that arises is, how much will premiums go down by? It isn’t a simple calculation, unfortunately. And a variety of calculations are doing the rounds. Put simply, because premiums are set to become exempt from GST, insurers will no longer be able to avail of input tax credit. This means that they’re likely to pass on the cost to customers in the form of a higher premium. So, while the premiums will fall, they could fall anywhere between 5% and 15%, according to various estimates.
