Insurance premium may become costlier if GST is reduced to zero, industry explains why

20-Aug-2025

As the government plans to overhaul GST rates across the industries, the insurance sector is on the radar for possible GST rate changes. As per CNBC-TV18, the government is planning to reduce GST on life insurance and health insurance from the current 18 per cent to 5 per cent or zero.

Lower GST: How will it impact premiums? 

While at the onset it looks like a reduced GST on health and life insurance will reduce the premium, however, the industry leaders are cautioning that a reduced GST will not reduce premiums; rather, it could lead to a higher premium. 

Veterans in insurance industry pointed out that if the government reduces the GST rates, the insurance companies may not be able to claim the Input Tax Credit. As per the current rules, the GST rate of 5 per cent or zero does not qualify for Input Tax Credit.

Moreover, as per stakeholders in the insurance industry, if they are unable to claim Input Tax Credit, it will reduce their margins, which would ultimately reflect in the premium, and the companies would not be able to reduce the premium. 

According to the CNBC TV-18 report, the insurance industry leaders are planning to reach out to the Finance Ministry to urge it not to cut the GST rates on health and life insurance.

IRDA recommendation on GST

Earlier in July, the Group of Ministers (GOM) formed on insurance had also recommended the complete removal of GST on term life insurance and health policies of senior citizens.

Before taking a final decision on the recommendations, the recommendations from the insurance regulatory body IRDAI were also sought, which were submitted to the council in December 2024 itself.

Source : Financial Express