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Cutting GST from 18% to nil is a big relief for policyholders, but analysts note benefit may not always be a full 18% cut, as insurers will also lose access to input tax credit.
No GST On Health And Term Insurance Policies.
In a major decision, the government has exempted individual life and health insurance policies from the Goods and Services Tax (GST), effective September 22, 2025. Currently, these policies attract 18% GST. Cutting GST from 18% to nil is a big relief for policyholders, but analysts note that the benefit may not always be a full 18% reduction, since insurers will also lose access to input tax credit (ITC). How much will premiums fall? All you need to know:
56th GST Council Decisions: No GST On Insurance Policies, No Input Tax Credit
Finance Minister Nirmala Sitharaman-led GST Council has decided to exempt individual insurance policies from GST. All individual life insurance products — including term life, ULIP and endowment policies — as well as subsequent reinsurance will now be exempt. However, along with the GST exemption, insurers will no longer be able to claim ITC, which previously allowed them to offset GST paid on their own business expenses.
What is Input Tax Credit?
Input tax credit (ITC) is the GST a business can set off against the tax already paid on purchases made to run the business, such as raw materials, machinery, or office supplies. Instead of paying GST twice, companies subtract this credit from their final GST liability, which reduces their overall tax burden and helps keep costs lower.
No Input Tax Credit On Insurance: Why The Full 18% Cut May Not Show Up
For insurers, ITC meant they could claim back the GST paid on expenses like office rent, IT systems, advertising, and outsourced services, adjusting it against GST collected from policyholders’ premiums.
For example, suppose an insurance company spends Rs 1 crore in a year on rent, advertising, and IT systems. At 18% GST, it pays Rs 18 lakh GST on these expenses. At the same time, it collects Rs 50 crore in premiums and charges 18% GST, or Rs 9 crore. With ITC, the insurer could subtract the Rs 18 lakh already paid on expenses, reducing its final GST outgo to Rs 8.82 crore.
Now, with GST on premiums removed, this adjustment will no longer be available. Insurers will save customers the 18% GST, but their own costs rise slightly because they cannot claim ITC.
What It Means For Customers
As per the decision, premiums should come down by as much as 18%. Announcing the outcome of the 56th GST Council meeting, Finance Minister Nirmala Sitharaman also said, “We will make sure that companies pass on GST rate reduction and make insurance affordable for the common man and increase the insurance coverage in the country.”
However, industry analysts say premiums will indeed fall, but the reduction may be a little less than the full 18%, depending on each insurer’s cost structure. According to HSBC Securities, health insurance premiums could decline by around 15% on average, with full repricing expected over 12-18 months. Industry estimates also suggest insurers may face a 3-6% impact on combined ratios in the retail segment.
If the companies pass on the full GST cut, an insurance premium of Rs 15,000 will fall by Rs 2,700.
The reform is seen as a positive step for customers. “Removing GST from health and life insurance would directly reduce the cost of premiums, making insurance products more affordable and accessible,” said Akash Parwal, CEO of Square Insurance. “Currently, the 18% GST increases the cost of a Rs 25,000 health policy by about Rs 4,500, which discourages middle-class households and younger buyers. Eliminating this tax could support the objective of increasing insurance penetration in the country.”
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
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