Insurers will no longer be able to claim input tax credit (ITC) on Goods and Services Tax (GST) paid on commissions and brokerage for individual health and life insurance policies from September 22, the Central Board of Indirect Taxes and Customs (CBIC) clarified on Tuesday.The move comes ahead of the implementation of the new GST slab structure, which exempts premiums for individual life and health policies from the 18 per cent tax rate, PTI reported.According to CBIC’s FAQs, while reinsurance services will remain exempt, all other input services for individual policies—such as commissions, brokerages, and other related expenses will no longer be eligible for ITC. As a result, the taxes already paid on these inputs will now be a cost to insurance companies, rather than recoverable through credit.
Input tax credit reversal to affect service providersThe CBIC also highlighted similar provisions for other sectors under the 5 per cent GST slab without ITC. For instance, hotels supplying rooms at Rs 7,500 per day or below and providers of beauty or physical well-being services at 5 per cent without ITC cannot claim credit for inputs used exclusively for these services. In cases where goods or services are used partially for supplies taxed at 5 per cent without ITC and partially for other taxable supplies, service providers must reverse proportionate credit.
“The government aims to maximise benefits for the end customer. The dual-rate option is not available in these sectors, simplifying compliance but passing the GST cost to service providers,” said Rahul Shekhar, Partner – Indirect Tax, Nangia Andersen LLP, PTI quoted him as saying.Exemption scope and compliance clarificationsCBIC clarified that the exemption applies only to individual life and health insurance policies provided to a single person or their family, and does not extend to group insurance plans. Meanwhile, all other input services for such policies, including commissions and brokerage fees, must be reversed for ITC purposes.For other goods and services impacted by GST rationalisation, the CBIC reiterated prior guidance. Sand lime bricks’ GST has been reduced from 12 per cent to 5 per cent, while other brick categories remain at 6 per cent without ITC or 12 per cent with ITC. For medicines, re-labelling existing stock is not required if compliance can be ensured via revised price lists.AMRG & Associates Senior Partner Rajat Mohan said, “While the reduced GST rates are designed to benefit consumers, service providers will absorb embedded GST costs on inputs. Careful accounting is needed to ensure proper ITC reversal where applicable.”The changes are set to take effect from September 22, coinciding with the rollout of the new GST structure, which will reduce the number of tax slabs and exempt premiums for individual health and life insurance from GST.