Life insurance, health insurance and motor insurance policies will begin to cost more from July 1, 2017.
Under the new GST norms, the government has hiked the service tax rate on insurance policies by 300 basis points i.e. from 15% to 18%. Insurance companies charge service tax on base premium. For instance, if the base premium of a term insurance policy is Rs.10,000, the total premium amount would go up to Rs.11,800 instead of Rs.11,500.
For insurance intermediaries, GST implications would be same as mutual fund distributors i.e. 18% if annual commission exceeds Rs.20 lakh. However, insurance agents and brokers cannot avail the benefits of input credit. Simply put, agents earning over Rs.20 lakh from insurance commission cannot set off GST against other services. The new GST norms exclude the insurance industry from the benefits of input tax credit.
However, the government will continue to deduct TDS on commissions. Currently, insurance companies deduct TDS of 5% on commission amount exceeding Rs.15,000. Agents can claim refund on this TDS based on their tax liability at the time of filing returns.
For insurers, the cost of compliance will go up because of state specific registration. The GST Bill says that the service tax has to be paid at a place where it has been consumed. That means insurers will have to register themselves with the service tax department of the respective states.
