August 22, 2025

India’s GST Council is cooking up a big change for insurance lovers! The government has proposed to remove the 18% Goods and Services Tax (GST) on individual health and life insurance policies. If this tasty move becomes official, term and health insurance customers could enjoy yummier savings. But hold on, the recipe includes some complex flavors! Experts warn that while the GST exempt status sounds great, it might cause 'input tax credit' (ITC) blocking. Think of ITC as a discount insurance companies get on their expenses like commissions and reinsurances. If these key services do not get exempted too, costs could rise! Mahesh Jaising, a Deloitte India leader, said, "We need to watch out for the fact that an exemption results in credit blockages, which could impact cost." He adds that the insurance industry is keen on commission and reinsurance also getting exempt to keep costs down. Saurabh Agarwal from EY India explained that even if GST is dropped to zero on policies, insurance companies won’t get a full 18% slash in price. Why? Because they can't claim back GST paid on things like office rent, commissions, and software anymore. This hidden tax becomes their new expense, so the final price cut for consumers will be less. He pointed out, "If the tax had been 'zero-rated' instead of 'exempt', companies could have claimed a refund for the GST paid on their inputs, and consumers would have seen a full reduction of the tax from their premiums." Dhruva Advisors expert Jignesh Ghelani says the impact depends on how the GST exemption is designed and applied, especially regarding ITC rules. Different policies will taste different effects: - Term & health insurance mainly covers risk without investments, so premiums are usually low. These stand to get the biggest price drop. - Traditional life insurance policies invest 30-40% of premiums early on, which changes how much price cut you see. - ULIPS (Unit Linked Insurance Plans) invest 80-95% of premiums, so GST exemption here may barely change costs. Normally, GST at 18% is charged on the part of the premium covering risk, not on investment portions. So, "the direct impact of the exemption may not necessarily bring a reduction of the premium by 18% for all the types of insurance policies," said Ghelani. The flip side? Without ITC on their expenses, insurance firms might raise prices to balance costs, cutting into your savings. But overall, if the GST exemption and exemption on input services are aligned properly, term and health policyholders could see insurance becoming more affordable. Traditional life policies and ULIPs might not enjoy much of a price party, sadly. The final GST decision is expected next month by the GST Council, with state finance ministers pushing hard for this sweet deal. Let’s keep our fingers crossed for a pocket-friendly insurance feast soon!

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Tags: Gst exemption, Health insurance, Life insurance, Input tax credit, Insurance premiums, Gst council,