Life and health insurance premiums may rise as the government considers fully exempting them from GST. Insurers caution that the move will block their ability to claim input tax credit (ITC) on services, forcing them to pass the 18% burden to policyholders and negating the intended relief.
According to Finance Ministry sources, the Group of Ministers (GoM) on health and life insurance will table a proposal to fully exempt these services at the 56th GST Council meeting on September 3-4 in New Delhi. The GoM had earlier recommended scrapping the current 18% GST to make policies more affordable.
The proposal covers all individual life insurance policies and family floater health policies, along with reinsurance.
What do Insurers have to say about this move?
However, insurers argue that a full exemption would raise costs instead of lowering them. At present, insurers claim ITC on reinsurance, commissions, third-party administrator services, and other operational expenses. Losing this benefit would compel them to pass on higher costs.
“If premiums are exempted from GST, ITC will no longer be available, forcing insurers to pass on the burden to policyholders,” said a senior executive at a private general insurer. Insurers currently offset 8–10% of their premium costs through ITC.
What did Hemik Shah say?
Hemik Shah, co-founder of Qian Insurance, said that the savings from a rate cut would be offset by higher premiums if insurance services are fully exempted without ITC.
States including West Bengal, Kerala, and Tamil Nadu have also flagged concerns, noting that the relief would only work if insurers pass on the benefit to customers. They further warned that a full exemption could result in a revenue loss of over ₹9,000 crore to the Centre.