Insurance could be exempted from GST so that insurers can claim ITC: LIC MD

LIC MD Ratnakar Patnaik urges the government to exempt insurance from GST to restore input tax credit and suggests raising the tax threshold for high-value insurance policies

On Monday, Ratnakar Patnaik, managing director of Life Insurance Corporation of India, urged the government to consider raising the threshold for high-value policies whose maturity proceeds are currently taxed. He suggested increasing it from ₹5 lakh to ₹10 lakh.

 

In February 2023, the government decided to tax income from traditional insurance policies — other than unit-linked products — with annual premiums above ₹5 lakh, to plug an arbitrage that high networth individuals were using to secure tax-free returns under Section 10(10D).

 

This has hit life insurers’ margins, prompting them to adjust their product mix to cushion the impact of the government’s measures.

 

Patnaik also urged the government to reconsider the goods and services tax (GST) treatment of insurance so that insurers can regain access to input tax credit (ITC), which was withdrawn under the revised GST structure and has led to margin losses for most insurers.

 

Recently, GST on premiums for individual life and health insurance products was brought down to zero from the earlier 18 per cent. At the same time, insurers lost the ITC they could previously claim on the GST they paid. As a result, companies are again seeing margin pressure and have begun taking steps to offset the impact of the ITC removal. These include shifting the product mix towards more margin-accretive products, reducing distributor commissions, and cutting overall costs.

 

Speaking at a Confederation of Indian Industry event in Mumbai on Monday, Patnaik said, “My request is: from zero taxation, can it be made GST-exempt? This will help us have some ITC.”

 

“Policies with premiums above ₹5 lakh — their proceeds are taxed. Is it time to revise the threshold upwards? Maybe up to ₹10 lakh,” he added.