India's GST Council has decided to club insurance with the financial services sector and tax it at 18% under the GST regime, which will make insurance cover more expensive with effect from 1 July.
Currently, service tax on insurance sector is about 15% including cess.
The GST Council's decision will increase the tax rate for customers from the existing 15% to 18%, said Mr Gopal Balachandran, Chief Financial Officer of ICICI Lombard.
He added that the industry has been seeking exemption from GST and the exemption list is being awaited, reported Press Trust of India.
PwC India's Joydeep K Roy said that considering the low penetration of insurance in India, microinsurance or certain categories of insurance below a threshold need to be exempt from GST.
Insurance company executives say that any higher cost as a result of the GST will be immediately passed on to customers.
In the past, the insurance sector has made representations to the Finance Ministry to consider the GST rate of 5% for the sector. However, the Ministry did not agree to this demand.
The GST is seen as the biggest tax reform since India's independence in 1947. The national GST tax will replace more than a dozen federal and provincial levies as Prime Minister Narendra Modi strives to unify the nation into a common market and make it easier to do business in the world's fastest-growing major economy. The five GST rates are zero for essential items such as grain, 5% for mass consumption items such as tea and 12% for commonly used products such as processed foods. Rates are 18% for items like household goods such as soap and financial services, and 28% for durables such as cars and air conditioners. In the current system, a single rate of 15% is levied on most services.