The GST Council is set to offer clarification on input tax credit for life insurers, following a recent demand of Rs 290 crore imposed on the state-owned Corporation. The complexity in GST arises concerning traditional life policies or endowment plans, where GST is applied to only a portion of the premium. In the first year, GST is levied at 4.5%, while subsequent years see a 2.25% levy. The issue revolves around the input tax credit claimed on the portion of the premium exempted from GST payment.
Tax authorities argue that since the premium itself is exempt, companies should not be allowed to claim input tax credit. LIC (Life Insurance Corporation of India), with multiple registrations across the country, has received a GST notice, and there is concern that others may follow suit in the coming months. Private insurers may also face similar actions, prompting the government to address the matter at the GST Council level.