GST Impacting on Insurance and Banking

GST Impacting on Insurance and Banking

After July 1st 2022, the Insurance and Banking Sectors have gotten even more expensive after the GST rates were increased to 18% from the previous 15% rates. GST impact will be seen in the form of higher premiums, especially in the case of families paying for health, life and car insurance. 

Impact of GST on General Insurance Holder and Exemptions under it

General Insurance including Fire insurance, Marine Insurance, Car Insurance, theft insurance etc. will also have a GST rate fixed at 18% rate. 

After the hike in GST rate from 15% to 18%, the policyholders for general insurance will see a rise in premiums as well. However, Corporate Policyholders with general insurance can avail of the Input Tax Credit benefit on the GST that has been paid on the policies insured by them. However, Life & Health Insurance policyholders will not have the benefit to claim Input Tax Credit as it is unavailable for such, being for personal purposes. Furthermore, no Input Tax Credit will be available for Corporate Policyholders providing group life and health insurance policies for their employees. 

Life insurance provided by Government schemes is exempted from GST: 

  1. Janashree Bima Yojana (JBY) 
  2. Aam Aadmi Bima Yojana (AABY) 
  3. The Insurance Regulatory and Development Authority has approved a micro-insurance product with a maximum cover of Rs.50,000. 
  4. Varishtha Pension BimaYojana 
  5. Pradhan Mantri Jeevan Jyoti Bima Yojana 
  6. Pradhan Mantri Jan Dhan Yojana 
  7. Pradhan Mantri Vaya Vandan Yojana 
  8. It is possible for the Government of India to notify any other insurance scheme of the State Government if GSTC recommends it. 
  9. Army, Navy, and Air Force members have access to life insurance provided by the Central Government. 

Impact of GST on Banking Companies 

Currently, banking services charge a 15% service tax, which will increase to 18% under GST. As with insurance, banking services will also become more expensive to customers due to tax increases. In most banks, transaction charges are now applied to cash withdrawals from ATMs and branches (the first five withdrawals are free). The service tax on all of these will increase from 15% to 18% under GST. 

In addition to passing on tax liabilities to their customers, banking companies will have to do a great deal of administrative and compliance work. Branches give services to each other which will be taxable under GST (they can later claim input tax credit) resulting in an increase in the paperwork and therefore the operating costs.

Good news for business consumers as they can now claim the input tax credit on the banking services paid on their business accounts.

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BY: Admin Tax4wealth

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