GST: BENEFIT TO SOME, BURDEN TO OTHERS

GST exemption reshapes India's insurance landscape by offering relief to customers, while putting pressure on insurers

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On September '25, during the 56th GST Council meeting, the Indian government notified that individual life insurance and individual health insurance premiums (including term insurance, ULIPs, endowments, family floater health plans, senior citizen health policies, and corresponding reinsurance) would be exempted from GST (Goods & Services Tax), which had earlier been 18%.

IMPLICATIONS FOR CUSTOMERS

Lower Premium Outgo

Because 18% GST was applied on top of premiums, its removal means that policyholders will now pay only the base premium for individual life & health insurance. That could translate into ~12%-15% savings for many customers.

Example: A health insurance premium of ₹15,000 per year earlier cost ₹17,700 with 18% GST; after the change, it drops nearer to ₹15,000.

Improved Affordability & Higher Penetration

The reduced cost may encourage individuals who earlier found insurance expensive, especially in rural, semi-urban, or “missing middle” segments, to buy life or health insurance. This helps towards the government's stated goal of “Insurance for All by 2047.” Existing policyholders may increase sum assured or opt for better more comprehensive covers since some budget headroom opens up.

Clarity & Trust Expectations

Regulator (IRDAI) has asked insurers to pass on the benefits to policyholders. That means the savings from the tax cut should reflect in premium reductions or at least no increase in base premiums immediately.

Policyholders will need to watch whether insurers actually reduce premiums or keep base premiums the same and pocket the difference (which would go against the intent).

IMPLICATIONS FOR THE INSURANCE SECTOR (INSURERS, AGENTS, INDUSTRY)

Loss of Input Tax Credit (ITC) & Operational Costs