'Stop whining, cut premiums': Sanjeev Sanyal tells insurers to pass on GST benefits

PM's Economic Advisory Council member Sanjeev Sanyal has dismissed concerns from the insurance industry over the recent GST exemption on health and life insurance premiums, saying companies should focus on innovation and pass on the benefit to consumers.

"No, I'm sorry. There is very little sympathy one can have for them. By removing that 18% tax, we have dramatically opened up the market for them. So it is up to them to now come up with some useful products that should be now available for consumers. So rather than whine about this, what they should do is to come up with more innovative products which are in sync with what the new expanded demand system will be," Sanyal said in an interview with Moneycontrol.

The GST Council, earlier this month, removed the 18% GST on health and life insurance, reducing the tax to zero. Policyholders had hoped this would lower premiums, but industry voices expressed apprehension. Insurers argued that without GST collection, they could no longer claim input tax credit (ITC) on expenses such as office costs, commissions, and marketing. Experts warned this could actually push premiums higher.

For example, a life insurance policy with a Rs 100 premium previously cost Rs 118 with GST. Insurers could offset about Rs 12.6 of operational GST against the Rs 18 collected from customers. With GST cut to zero, that offset disappears, leaving insurers to absorb the Rs 12.6 cost or transfer it to policyholders through higher premiums.

Sanyal, however, made it clear that the government's intent was for companies to pass on the benefit. "If you are taxing something less, they should pass it on. What argument is there about not passing it on?" he said. He acknowledged only a "minor issue" in the short term related to labeling and products already in supply chains, but stressed that beyond this transition, businesses had no excuse.

On Inspector Raj and GST 2.0

Sanyal, when asked if there was any mechanism to ensure GST cuts would be passed on to consumers, said the government expects companies to comply but is clear it will not revive an "Inspector Raj". "The signal has been given by the government that it should be allowed to pass through. But then we didn't want to create another Inspector Raj trying to enforce it. So this will to some extent have to be done by public pressure," he said.

He noted that GST registration had become unnecessarily complex over time, leading to harassment. "The idea was that anybody registers and quite quickly you get your number, but over a period of time that process had become complicated and we had heard lots of complaints about it. Yes, there are sometimes genuine misuse. But usually for 2–3% of the cases, 98% of the system would be stalled. And of course, the resultant rent-seeking harassment etc. that comes with it. So as you may have heard, that process has also been significantly smoothened."

On businesses showing reluctance to pass on GST cuts in sectors like FMCG, Sanyal said: "We'll see how it goes. But I have very little sympathy other than the minor issue of labeling. Beyond that, I have no sympathy about the matter."