The Indian government recently announced the withdrawal of the Goods and Services Tax (GST) on individual life and health insurance premiums, effective September 22, 2025. This move is aimed at making insurance more affordable and accessible to the general public. But what does this mean for policyholders and insurers? Let’s break it down.
How Policyholders Benefit
1. Lower Premiums
Earlier, policyholders had to pay an 18% GST on top of their insurance premiums. With GST removed, the cost of insurance policies drops significantly. For example, a ₹10,000 premium will now cost exactly ₹10,000 instead of ₹11,800, giving an immediate saving of ₹1,800 per year.
2. Refunds on Multi-Year Policies
If you’ve paid premiums in advance for multiple years, you may be eligible for a GST refund for the period after September 22, 2025. While the exact refund process is still being clarified by insurers, this could translate into substantial savings for long-term policyholders.
3. Immediate Savings on New Policies
Any new policies purchased on or after September 22, 2025, will be GST-free. This gives policyholders instant financial relief and makes health and life insurance more accessible.
Challenges for Insurers
1. Loss of Input Tax Credit (ITC)
Insurers previously claimed ITC on GST paid for operational expenses. With GST removed, this credit is no longer available, potentially increasing insurers’ operational costs.
2. Possible Premium Adjustments
To compensate for lost ITC, some insurers may adjust premium rates or modify policy structures. While GST is gone, the base premium may still be revised, which could affect affordability for some policyholders.
3. Commission-Related Issues
Insurance agents’ commissions are still a point of concern. The Life Insurance Council has urged the government to remove GST on agents’ commissions. Without this, insurers face loss of ITC, which may indirectly affect profitability and policy offerings.
What Policyholders Should Do
1. Review Policy Documents – Understand how the GST exemption impacts your premium and coverage.
2. Consult Your Insurer – For multi-year policies, check if you are eligible for a refund.
3. Stay Updated – Watch for changes in premium structures as insurers adjust to this new tax regime.
Final Thoughts
The GST exemption on insurance premiums is a welcome step toward making insurance more affordable in India. While policyholders benefit immediately, insurers may face challenges that could affect policy pricing and offerings in the future. Staying informed and proactive will help you maximize the benefits of this new policy.
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