GST changes, ITC withdrawal may have weighed on insurers’ profitability in Q2

‘The change in goods and services tax (GST) rates, implemented last month, and the removal of input tax credit (ITC) may have weighed on life and general insurers’ profitability in the second quarter of 2025-26, according to analysts.

- AATHIRA VARIER

Insurance companies have passed on the entire benefit of GST cuts to consumers and are likely to split the impact of the removal of ITC with distributors.

‘The profitability of life insurance companies — measured by the value of new business (VNB) margin — is likely to be impacted by multiple factors, including product mix changes, GSTITC loss on expenses, and rise in yields. Analysts say there could be 50-150 basis points (bps) year-on-year (Yo-Y) compression in VNB margins of private companies. According to analysts at Kotak Institutional Equities, “ITC loss for life insurers will be about 165-400 bps of VNB margins. We consider an increase in expenses due to the loss of ITC distribution commissions and operating expenses, without assuming any sharing of burden with distributors or customers.”