MUMBAI: The life insurance industry is seeking the restoration of tax breaks yet again for those who seek protection net, the importance of which was realized in the current financial year, two sources in the know told ET.
The Life Insurance Council is lobbying for a lower rate of GST ahead of the union budget, from the current 18% to the 5% slab for protection-based services, arguing that it is not a luxury consumption item.
According to a source cited above, the council has made recent representations to both the insurance regulator IRDAI and the Finance Ministry to reduce the existing tax rates on protection-based products to the minimum slab of 5%.
âThe demand and perception for life insurance have been somewhat different since the onset of the pandemic,” said the executive. “A protection-oriented product has to be viewed differently. This is not new and the industry has reiterated the demand one more time in view of the pandemic.â
A mail written to Life Insurance Council seeking comments didn’t elicit a response.
According to industry insiders, the IRDAI in September had directly sought a reduction on tax rates for both life and health covers ahead of the 43rd GST Council meeting.
For a rate change to materialize, a fitment committee with representations from both states and the Centre need to approve the proposal before making a recommendation to the GST Council for its final approval.
A second person aware of the developments said that such a proposal may face hurdles especially when the government is focused on increasing its revenue.
âI canât comment on whether itâll be approved (or not) but itâs a very relevant demand,â said the CEO of a private insurance company. âThis is a push product where customers have to be convinced. A GST rebate makes the product more accessible to people and society at large benefits and it is worthwhile to do.â
The primary tax rebate demand applies to protection products.
âWe understand it canât happen for all products like investment linked ULIPs. But this is something the government should consider on protection, traditional products and health riders,â the cited person added.
The insurance industry and the regulator have previously on several occasions sought a reduction in GST rate. In 2017, it had sought a reduction of GST rate to 5% and then again to 12%.
The industry has also launched a standard protection cover called the Saral Bima Yojana, which is targeted specifically for the âmissing middleâ income groups that are typically not covered by life insurance policies.