Insurance industry wants govt to extend ITC benefits to distribution costs, renewals: CEO of Aditya Birla Sun Life Insurance

The life insurance industry is preparing to approach the government with fresh demands after the GST Council exempted individual life and health insurance policies from tax earlier this month. Kamlesh Rao, MD & CEO of Aditya Birla Sun Life Insurance, told CNBC-TV18 that the industry’s main ask is for input tax credit (ITC) benefits to be extended to distribution costs and renewal premiums of past policies, even under the new zero-GST regime.

“Distribution cost is similar to reinsurance cost, which has already been exempted. So, we’re asking for that exemption as well,” he said.

Rao noted that the biggest relief will be seen in the protection business, where GST earlier stood at 18%. “Earlier, a customer paying ₹100 plus ₹18 GST paid ₹118. In the new regime, the customer may pay ₹104–105 instead,” he explained. Savings products, where GST is about 4–4.5%, will see only limited impact.

On the company’s financial metrics, Rao said the effect on embedded value will be minimal, as the exemption applies to renewal premiums as well. The bigger concern, he said, is the inability to claim ITC on ongoing servicing costs, which will remain a burden.

Insurers are likely to absorb part of the change. Rao estimated that out of the 18% GST earlier levied, about 12–13% of the benefit would flow directly to customers, while insurers may need to bear 3–5% due to unrecoverable ITC.

Despite these cost challenges, Rao underlined that the move will strengthen the sector’s long-term growth prospects. He pointed out that India suffers from low penetration and a wide protection gap, and the GST cut will help narrow both. “It’s in line with the aspirations of the government to ensure that we have insurance for all by 2047, so I think it’s a welcome step in that direction,” he said.

Watch the video for more