A major decision was made during the 56th GST Council meeting led by Finance Minister Nirmala Sitharaman. The 18% GST on health and life insurance premiums has been brought down to zero.
While this move is seen as a relief for customers, brokerage firms warn that it could lead to a 1–4% increase in insurance premiums.
For a long time, GST on health and life insurance has been a debated issue.
Customers and the insurance industry have been demanding lower tax rates, but the central and state governments were hesitant due to possible revenue loss.
Brokerage firm Emkay Global has said that although this GST cut is good news for policyholders, it also raises some concerns.
Key questions include which insurance products are covered and how insurance companies will deal with the loss of input tax credit (ITC).
Customers Will See Direct Savings
According to brokerage firms, with GST now at zero, customers won’t have to pay the extra 18% tax on their insurance premiums.
This means an immediate saving for policyholders, as insurers will need to pass on the benefit to them.
New Challenges for Insurance Companies
However, insurance companies now face a new problem. Earlier, they could claim input tax credit on GST paid for agent commissions and services.
With GST at zero, they lose this ITC benefit and must bear those costs themselves. To make up for this, insurers might raise the base premium.
Global brokerage firm CLSA suggests that premiums could rise by 1–4% to offset this cost.
Among the insurers, SBI Life has the lowest operating expenses, so its premium hike might be the smallest.
Even with the increase, customers will still pay less overall because the 18% GST is no longer applied.
What Does This Mean for Your Premium?
Let’s say a policy’s base premium is ₹100. Earlier, customers paid ₹118 after adding 18% GST.
If the insurance company paid ₹35 in commissions and services, it would be charged ₹6.3 as GST on that amount. This ₹6.3 was adjusted through ITC.
The insurer used to offset this ₹6.3 against the GST collected from customers and deposited only ₹11.7 with the government.
Now, with GST at zero, companies can’t claim this credit. To cover the ₹6.3 cost, they may raise the premium to ₹106.3.
