Talking on the CII Financing Summit, LIC managing director Ratnakar Patnaik mentioned whereas the GST exemption on particular person life and medical health insurance, which got here into impact from September 22, had made insurance policies cheaper for shoppers, the GST construction must be modified in order that insurance coverage companies are handled as ‘zero-rated’ as a substitute of ‘exempt’.
At current, insurers are going through a success on margins and embedded worth as a result of they will not declare enter tax credit score (ITC).
Underneath an exempt class, insurers can’t declare ITC on inputs akin to commissions, expertise companies, workplace leases and vendor prices, making these bills a direct price. In distinction, zero-rated provides permit the insurer to say and even refund unutilised ITC.
To draw high-value clients and mop up long-term funds, Patnaik additionally sought a rise within the tax-free restrict on maturity proceeds to ₹10 lakh annual premium from the present ₹5 lakh, saying that it will revive demand for large-ticket insurance coverage.
He additionally proposed a regulatory modification permitting any funding by LIC over the mandated 50% allocation to authorities securities to be labeled as ‘housing and infrastructure’ funding. This, he mentioned, would supply higher visibility and adaptability in deploying capital towards nationwide improvement priorities.Insurers have warned that the GST exemption, whereas optimistic for penetration, will weigh on profitability except offset by greater gross sales quantity or sharper expense administration. Some personal insurers are already reviewing fee buildings to soak up the lack of ITC.