- GST on individual health and life insurance premiums has been reduced from 18% to nil
- Policyholders can save up to Rs 4,500 annually on premiums with the removal of GST
- The reform aims to make insurance more affordable and increase adoption among households
The GST Council has announced that goods and services tax on individual health and life insurance premiums will drop from 18% to nil.
What This Means For You
A policyholder paying Rs 15,000 annually earlier shelled out an additional Rs 2,700 as GST, taking the total cost to nearly Rs 17,700. With GST removed, the premium could fall back to just Rs 15,000, saving Rs 2,700 each year, or Rs 4,500 saving on an annual premium of Rs 25,000.
"This reform will not only make coverage more affordable but also encourage greater adoption, particularly among middle-income and vulnerable households," said Ashish Goyal, co-founder of Fibe.
"It creates a win-win scenario for both consumers and insurers, embedding insurance more deeply into financial planning," added Rakesh Jain, CEO of Reliance General Insurance.
Input Tax Credit
While consumers cheer the move, insurers face a challenge. Until now, companies collected GST from customers and claimed input tax credit on expenses like:
Agent commissions
Outsourced call centres
Office rent
Logistics and courier services
Software and admin tools
For example: if an insurer collected Rs 100 in GST but had already paid Rs 30 in GST on its own expenses, it only remitted RS 70 to the government. With GST now at zero, insurers lose this ITC benefit, potentially raising their operational costs.
Analysts said GST exemption is positive for health insurers and insurance penetration. Insurers will be left with a GST liability on their expenses while their GST incoming has been removed. To protect their profitability and manage this change, such insurers may implement price hikes.
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