Insurance players to seek clarity on credit life policies

Mumbai: Insurers are going to seek clarity from the Centre on the scope of GST exemption for life and health covers after the GST Council scrapped the indirect tax on individual policies but retained the levy on certain adjacent product lines.

Life insurers want clarity on credit life policies, which are technically individual covers but structured as group contracts by lenders to repay outstanding loans in case of a mishap. Insurers say that these policies should qualify for exemption but were not explicitly mentioned in the GST Council's notification. "What has been mentioned outright is that the exemption is for individual life and health policies. There is no mention of corporate or group policies, which are taken by an individual, and premium paid by an individual," a senior industry executive said.

The GST Council moved all individual life and health insurance policies to the nil tax category, effective September 22. The exemption covers term, unit-linked and traditional life insurance products, as well as health covers such as family floaters and senior citizen plans.


Another grey area is corporate health covers, where the employer pays the base premium, but employees contribute toward top-up plans. Since employees fund the top-up themselves, insurers say these should also be treated as individual policies and qualify for exemption.

Similarly, there is uncertainty around travel insurance, which currently attracts 18% GST. "From what we understand, the nil rate is applicable only to life and health insurance, not other categories and the industry is planning to seek clarifications," another executive added.

Previously, GST was levied at multiple rates. This included an 18% tax on term and ULIPs, 4.5% tax on first-year traditional plans and 2.25% on renewals.