No GST on Insurance Premiums : From September 22, policyholders will no longer have to pay 18% Goods and Services Tax (GST) on health and life insurance premiums. At first glance, this sounds like a massive win for customers. After all, if you were paying ₹20,000 annually for a health insurance plan, that included around ₹3,050 in GST, which will now vanish from your bill.
However, experts caution that the celebration may be short-lived. While customers save on upfront GST, insurers lose their ability to claim input tax credit (ITC) on operational expenses such as commissions, brokerages, advertising, software, rent, and reinsurance. Without ITC, insurers’ costs rise, and over time, these additional expenses could find their way back into renewal premiums. What seems like an immediate 15–18% saving might actually shrink to a much smaller benefit.
This policy shift has sparked debate across the insurance industry. Advocates welcome the move as a step toward improving insurance affordability and penetration, but analysts warn that unless regulators enforce transparency, policyholders could face higher renewal premiums in the long term. Let’s break down the math and what this really means for you.
How GST Worked on Insurance Premiums
Until now, your insurance premium had two components:
- Base premium (charged by insurer for risk coverage)
- GST at 18% (collected from you and paid to the government)
Example:
- Annual health premium: ₹20,000
- Base premium: ₹16,950
- GST at 18%: ₹3,050
- Total payable: ₹20,000
Earlier, insurers passed on GST to the government but could claim ITC for GST they paid on their own expenses (like commissions or office rent). This kept costs neutral.
From September 22, no GST is charged to customers. But insurers also lose ITC, meaning GST they pay on expenses becomes a straight cost for them.
Why Policyholders May Not Save the Full 18%
At first glance, no GST looks like an 18% saving. But here’s the catch: insurers’ unrecoverable costs could reduce your net benefit.
- Manish Goyal, CMD at Finkeda, explains: “Customers will still see a reduction compared to earlier GST-inclusive pricing, but not the full 18%. Insurers may adjust base premiums upward to balance higher operating costs.”
- CA Mandar Telang, Secretary of the Bombay Chartered Accountants’ Society, estimates:
- Effective saving could be 3–6%, not 18%
- ITC reversal is around 1.5% of premium for endowment policies and 7% for term policies
This means while you will save, the reduction will likely be smaller than expected.
Can Insurers Raise Premiums After September 22?
Yes, but under strict rules.
- Shilpa Arora, COO of Insurance Samadhan, notes: “Insurers can increase base premiums to adapt to increased operational costs, but not mid-term or arbitrarily. Any revision happens only at renewal and must comply with Irdai’s product regulations.”
- As per Irdai’s Health Insurance Master Circular, any change to premiums must be justified, filed, and approved.
This means you won’t suddenly see higher charges before your policy ends — but at renewal, insurers may increase premiums to account for their added tax burden.
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Will Competition Help Policyholders?
While the short-term effect may be muted, experts believe competition could benefit customers in the long run.
- Adhil Shetty, CEO of BankBazaar.com, says: “As demand rises and insurers compete for market share, customers may see more relief. The direction is positive overall—insurance becomes more affordable, and penetration will likely rise.”
In other words, while insurers may initially adjust premiums to cover costs, market competition could force them to pass on more of the GST savings to customers.
What This Means for You
- Short-term relief: Premiums will look cheaper without 18% GST.
- Hidden costs: Insurers will absorb unrecoverable GST on expenses, which may push up base premiums over time.
- Smaller net savings: Actual benefit could be 3–6%, depending on the type of policy.
- Regulated increases: Premium hikes, if any, can only happen at renewal and must comply with IRDAI rules.
- Long-term outlook: More competition could increase affordability despite insurers’ cost pressures.
Conclusion
The GST exemption on health and life insurance premiums is a double-edged sword. On one hand, policyholders immediately benefit by not paying the 18% tax, which makes insurance appear more affordable. On the other, insurers lose ITC, raising their operating costs. This creates a risk that the hidden costs will be passed on through higher renewal premiums.
For customers, the net savings may be modest—likely 3–6% instead of the full 18%. While that still means paying less than before, expectations should be tempered.
In the long run, the move could help increase insurance penetration in India, as affordability improves and more people are encouraged to buy health and life coverage. However, much depends on how insurers price their products and how regulators enforce transparency.
For now, policyholders should monitor renewal premiums closely, compare plans across insurers, and stay informed about industry developments. The change is positive overall but may not deliver as much financial relief as the headlines suggest.
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FAQs of No GST on Insurance Premiums
1. Will my insurance premium drop by 18% after GST removal?
Not exactly. While you won’t pay 18% GST, insurers lose input tax credit, which raises their costs. Experts estimate that actual savings will be closer to 3–6%, depending on the type of policy.
2. Does this GST exemption apply to all insurance policies?
No. The exemption applies only to individual health and life insurance policies. Group insurance policies are not included in this benefit.
3. Can insurers immediately raise premiums because of this change?
No. Insurers cannot arbitrarily increase premiums mid-term. Any increase must happen at policy renewal and comply with IRDAI’s regulations.
4. Will competition help lower premiums in the future?
Yes. As demand rises and insurers compete for customers, pricing pressure may push insurers to pass on more savings. Over time, this could make premiums more affordable.
5. Should I buy insurance before or after September 22?
If you buy after September 22, your premium will not include 18% GST, so you will likely pay less upfront. However, remember that renewal premiums may still adjust based on insurers’ operating costs.
