A big decision has been taken in the 56th meeting of the GST Council. The Council has completely removed the 18% GST on health and life insurance policies. This change will come into effect from 22 September 2025. Initially, this announcement was seen as a relief by the general public, and they believed that now it would become cheaper to take an insurance policy. But according to experts, the reality may be the opposite.
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3-5% increase in premium possible
According to the latest report of Kotak Institutional Equities Research, despite the abolition of GST on health insurance and life insurance, customers will not get a direct benefit. Companies will no longer be able to avail input tax credit (ITC) on agent commission, advertising, reinsurance, and other operational expenses. As a result, they will compensate for this additional burden by increasing the policy premium. According to the report, an increase of 3 to 5% in rates is considered certain.
The cost of companies will decrease, but the benefit will not reach the customer
With the removal of GST, the total cost of insurance policies is expected to decrease by 12-15%. However, customers will not feel this relief directly. Since ITC will no longer be available, companies can increase the tariff to save their margins. The effect of this will be that the demand for insurance may increase slightly, but the general customers will hardly get the benefit of a lower premium in real terms.
Exemption on reinsurance services, too, but the relief is incomplete
The government has also excluded reinsurance services from GST. However, insurance companies will have to pay GST on many other services. Due to this, the tax structure will remain incomplete. Also, personal insurance policies have been kept in the category of exempted services, due to which they will not get the benefit of the Inverted Tax Structure (ITS). This tax structure will not be balanced for companies, and its effect will come in the form of an increase in premiums.
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Common people’s hopes dashed
This decision looks like a relief on the surface, but in reality, it may prove to be disappointing for insurance customers. Experts believe that this move of the government will make insurance expensive instead of making it cheaper. People who were expecting a drop in policy rates due to the removal of 18% GST may now have to face increased premiums.