As the GST rollout plans gathers momentum, life insurers sought exemption from the new taxation regime on premium income, while general insurers have demanded differential rates for their products.
Life insurers, who are set to write to the Prime Minister seeking exemption from the new tax regime, feel that their premium income has remained stagnant since the industry was brought under service tax in 2012.
Since life insurers are passing on service tax to customers, it has impacted their premium income growth which has been stagnant since then. The present service tax rate is 14.5 per cent and 0.5 per cent ‘Swachh Bharat’ cess.
A resolution to this effect was passed during the annual general meeting of the Life Insurance Council held here on September 16.
The demand comes as the first two-day GST Council meeting that ended on Friday in the National Capital, decided to meet on October 17-19 to finalise the maximum and minimum rates in the single national taxation regime.
Finance Minister Arun Jaitley has been repeatedly calling for ending tax exemptions to have lower GST rates as exemptions are forcing the government to impose higher rate of tax on other taxable items/sectors.
The Life Insurance Council, which is the umbrella body of 24 life insurers, is all set to write to the Prime minister in this regard shortly, as their representations to the finance ministry in the past have not been successful, a senior council executive said.
“Life insurers’ new business premium has remained stagnant at around Rs 1.25 trillion per annum since 2012 after the service tax was imposed by the government on premium income. This is in spite of the fact that earning capacity of the people has been constantly increasing,” Life InsuranceCouncil secretary V Manickam said.
“We have to pass it on to customers and they don’t find investing in insurance attractive anymore,” he added.
Forget service tax, the government has imposed a host
of other taxes on life insurance premium which include income tax and ‘Swachh Bharat’ cess, he said and pointed out that in contrast, other financial products like fixed deposits, debentures, mutual funds, equities, NPS etc are exempted from these taxes.
Moreover, investment under NPS is exempt from any tax under section 80(C) and even a special window has been opened under section 80 (C)(C)(D) which allows one to invest Rs 50,000 extra to save income tax payment.
Similarly, PF, at a time when an employee retires is not taxable at all. Similarly, the pension fund at the time of annuity is also tax free.
“Keeping this in view, we feel that a step-motherly treatment is being meted out to us and hence we are all set to write a letter to Prime Minister Narendra Modi soon,” Manickam said, adding “we have already made a host of representations on the topic to the finance ministry in the past.”
“We have been urging the government to exempt insurance premium from GST because we are doing a yeoman service to the nation. In fact, we are doing what the government was supposed to do by covering social security needs of the public,” he said.
Life insurers are making 50 per cent of their investments in central and state securities. As of March 2016, life insurers exposure to such debt instruments stood at Rs 15 trillion. While G-secs offer only an annual interest of around 7 per cent, corporate bonds get them 9 per cent or even more, thus losing 200 bps by investing in government bonds, he said.
Life insurers have paid Rs 7,000 crore in service tax to the government last year. When one includes other taxes like stamp duty, income tax and other such taxes and levies by 2.5 lakh employees of life insurance companies, the industry has paid Rs 25,000 crore in the form of taxes alone, he said.
Meanwhile, non-life insurers have already submitted their recommendations before the GST Council, the first meeting of which was held in New Delhi on September 22-23, demanding differential rates for their products.
There are four state-owned, and 17 private sector and two specialised general insurers in the country and majority of them are participating in the government-run scheme like Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Fasal Bima Yojana.