There will be no GST on health and life insurance
An important decision was taken in the 56th meeting of GST Council. The council decided to reduce the GST rate on health and life insurance policies from 18% to zero. That is, no GST will be imposed on health and life insurance. This exemption will be implemented from the first day of Navratri, 22 September 2025, ie. After this decision, a general perception became that now taking insurance policy will become cheaper, because 18% tax will not have to be paid. But a new report has destroyed this expectation. According to the report of Kotak Institutional Equities Research, the end of GST on health insurance may have to increase the premium by 3 to 5% instead of benefiting.
ITC finishes, companies will increase rates
Till now, insurance companies used to take advantage of the input tax credit (ITC) received on their operational expenses like commission, advertisement, re -recipient etc. But with the end of GST, these companies will no longer claim ITC. This will deteriorate their cost structure, which they can increase the policy rates by 3-5% to balance. The report clearly states that this increase may be necessary to maintain the margin of companies. Meaning, the direct benefit of the tax relief customers who had to get the tax relief will be absorbed in the increased premium collected from them instead of insurance companies.
Cost will be low, but no effect on customer
It has also been told in the report that due to the removal of GST, the total cost of insurance policies can be reduced by 12-15%. However, this deficiency will not feel directly to the customer, as companies can increase tariffs by 3-5% for compensation from not getting ITC. This creates the possibility that the demand for insurance in the market increases slightly, but the common customer can rarely get the benefit of low premium.
Reinstatement services will also be discount
The report also said that re -services will also be exempted from GST, but insurance companies will still have to pay GST on many other services. In such a situation, the total tax relief will remain incomplete. Also, since individual insurance policies will be considered as “exempted services”, they will not be able to get the benefit of Inverted Tax Structure (ITS) on them. This directly means that the tax structure that insurance companies will get will not be in their favor and they will compensate for this loss by increasing the premium.
This decision will not be beneficial for common people?
Overall, this decision may seem to be relieved, but the ground effect will be something else. Experts believe that this step of the government can eventually blow the public as expensive premium by expecting cheap insurance. Especially those people who were excited about this relief, may get disappointed in the coming time. The biggest reason for this is that the tax relief will not go directly to the customer’s account due to the removal of GST, but due to the increase in the cost of companies, they will collect that relief on their own.