THE TAX ON INSURANCE HAS ALWAYS BEEN CONSIDERED A BURDEN FOR THE COMMON PEOPLE

THE TAX ON INSURANCE HAS ALWAYS BEEN CONSIDERED A BURDEN FOR THE COMMON PEOPLE

7-SEP-ENG 3

RAJIV NAYAN AGRAWAL

PATNA-------------------------The tax on insurance has always been considered a burden for the common people. For a long time in India, 18 percent GST was being levied on health and life insurance premiums. This simply meant that if a person paid an insurance premium of Rs 10,000, he had to pay an additional Rs 1800 as tax. This tax gradually became so heavy that the purpose of insurance, i.e. protection and relief, started looking like an expensive deal. In this background, the government made a big change and completely removed GST on insurance premium. This decision will come into effect from 22 September 2025 and now the customers taking insurance will not have to pay any tax on the premium. Superficially, it looks like a big relief for the common people.

However, there is a complicated side hidden within this decision. As long as insurance companies charged GST on premiums, they had the right to adjust the tax paid on their other expenses. This is called input tax credit. For example, if an insurance company pays commission to an agent, spends on advertising, pays office rent or avails technical services, GST is also applicable on all these. Earlier, they used to adjust this GST with the GST collected by them. Now that GST has been completely removed, insurance companies will not be able to avail input tax credit. This simply means that they will have to pay GST separately on every expense and they will find a way to pass on this additional burden to their customers.

This is the reason why many experts are afraid that insurance companies may increase their base premium in the near future. If this happens, then despite the removal of tax on the surface, the common man will not get real relief. It is clearly a game that the government pretends to give relief and the companies deny that relief by increasing the prices. Tax will be reduced but insurance companies will recover the same money by increasing the premium, so who will get the real benefit.

The question arises whether there is any monitoring system to ensure that the benefit of tax exemption reaches the customers directly. Many people shy away from getting insurance due to the high insurance premium. The government argues that removing GST will increase the tendency of people to take insurance and the society will benefit from it in the long run. But until it is clear that the companies will keep the premium rates stable, it is difficult to trust this decision.

The real benefit will be only when the premium rates appear to be really low after the removal of GST. If earlier one had to pay Rs 25,000 annually on a policy and out of that about Rs 4,500 was tax, then now the same policy should be available at Rs 20,500, reduced from Rs 25,000. But if the companies increase the base premium to Rs 25,000 again citing the increase in their costs, then the entire decision will become only a paper relief.

The government has given a good message by removing the tax. But the real test will be whether the companies use this opportunity to give real relief to the people or to increase profits. The common people will benefit only when the government monitors the companies and the consumers feel that their insurance has become cheap and accessible. Otherwise, this change will remain confined to news headlines only.