No GST On Life And Health Insurance Premiums; Will Policyholders Reap Benefits?

No GST On Life And Health Insurance Premiums: The GST Council on September 3, 2025, scrapped GST on individual life and health insurance premiums, reducing rates from 18 per cent to an absolute zero. But the policyholders may not stand to benefit from this. While individual life and health insurance policies have been exempted from GST, the insurance companies are no more eligible to claim Input Tax Credit, which is used to offset the GST liabilities on their own homegrown services.

Now, there is a strong chance of policyholders witnessing increased base premiums, because insurance companies would want to offset their operating costs (like rent and commissions). Therefore, it would drastically reduce the final savings in the hands of policyholders.

Experts suggest that policyholders from reputed insurance companies should not delay their renewal process even if they want to wait for the new GST rates to start from September 22. This is so because a short delay could result in a policy lapse, leading them to lose valuable long-standing benefits, such as a no-claim bonus or renewal discounts.

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New customers can wait till September 22 before purchasing a fresh health or life insurance policy. There is a lot of confusion that persists around the GST being applied to new customers and policyholders who have recently paid their premiums.

Insurance Industry's Response and Future Outlook

Meanwhile, insurance companies are waiting for the Insurance Regulatory and Development Authority (IRDAI) directives in order to get some clarity on the matter.

According to a Kotak Institutional Equities report, a recent GST reduction has made many insurance policies much more affordable now. Customers who have already purchased policies can use the "one-month free look back" period so that they can rethink and surrender their policies, and buy cheaper ones instead.

According to credit rating agency, ICRA, there is a probability of strong opposition from policyholders as insurers, according to the reduced ITC, will absorb a portion of operating costs, but pass on the rest to their customers.

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Despite this, some reports say that customers' total insurance premiums will be slightly cheaper despite increased base premiums because there is a reduction of 18 per cent GST on these policies, which represents a larger cost reduction than an increase in base premiums.

The Kotak report also states that while insurance companies are exempted from paying GST, they will continue to pay GST on other services. Because now the insurance companies cannot claim ITC (Input Tax Credits) on their business expenses anymore, there is a strong chance that the companies can increase their base premiums by about 3 to 5 per cent to make up for the loss.

The reduction in GST slabs on health and life insurance policies also ensures that customers can now see the benefits of cheaper policies (without GST), which in turn, would also increase the number of people buying health insurance policies.

According to a Moneycontrol Report, GST will also no longer be applied to insurance renewal premiums, starting September 22, where an industry-wide premium hike is also considered unlikely, though individual companies can adjust rates based on performance.