GST Gone, But Insurance May Get Pricier: 5% Hike Ahead, Report Says

Business News: In the 56th meeting of the GST Council, an important decision was taken to reduce the 18% GST on health and life insurance policies to zero. This relief will come into effect from 22 September 2025. The initial estimate was that now it would be cheaper to take health and life insurance policies, and customers would get the benefit of tax relief.

Revealed in new study

According to the latest report of Kotak Institutional Equities, instead of customers getting direct benefit from the removal of GST, insurance companies can increase the premium by 3-5%. The reason for this is the abolition of input tax credit (ITC).

Premium may increase due to non-availability of ITC

Till now insurance companies used to take advantage of the tax spent on services like agent commission, advertising, and reinsurance in the form of ITC. This facility will not be available after the removal of GST. The report says that companies can increase the premium by 3-5% to balance their costs. This means that the benefit of tax relief will not be directly available to the customers but will be absorbed in the increased premium.

Cost reduction, no impact on customer

The report also states that the total cost can be reduced by 12-15%. But due to the abolition of ITC, companies will have to increase the premium to cover their costs. As a result, the common customer will not get the real benefit of this exemption.

Reliance on reinsurance services

The report mentions that reinsurance services will also be exempted from GST. However, insurance companies will still have to pay tax on many other services. Also, the benefit of Inverted Tax Structure (ITS) will not be available on personal insurance policies. This means that companies will not be able to give the full benefit of tax relief to the customers and will cover it by increasing the premium.

Experts' opinion

Experts say that this decision may seem to be a relief to the customers at first glance, but in reality, due to the increase in premium, the common people will not get any real benefit. This initiative of the government is a relief in appearance, but its effect in the market may be the opposite.

Overall, the removal of GST on health and life insurance looks tempting, but the common customer is unlikely to get any actual benefit from it.