GST on insurance premium: From September 22, health and life insurance policies will not carry GST anymore, as the rate is being cut from 18 percent to 0%. But many households looking to buy policies do not even have to wait till then, because policies purchased right now are being issued on September 22 with no GST added. People only pay the base premium.
A government release after the GST council’s 56th meeting on September 3 confirmed this. It said there will be “..Exemption of GST on all individual life insurance policies, whether term life, ULIP or endowment policies, individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country.”
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Why insurers talk about nil-rating vs exemption?
Bankim Mapara, Chief Financial Officer at Universal Sompo General Insurance, explained why insurers prefer nil-rating. He said, “Currently, it’s classified as exempt with effect from 22nd September 2025; accordingly, ITC will be blocked, thereby increasing insurers’ costs and potentially leading to higher premiums or reduced benefits over time. For policyholders as well as insurers, nil-rating is the better outcome for long-term affordability and quality.”
He pointed out that with exemption, insurers lose the ability to claim input tax credit (ITC). This means GST they pay on things like rent, IT systems, marketing, and agent commissions turns into a real expense rather than something they can get credit for. Over time, this can either reduce their margins or force them to raise costs for customers.
Anand Roy, CEO of Star Health and Allied Insurance, called this change a landmark reform. He said, “Starting now, customers can buy policies without paying GST, with coverage beginning from September 22. Health insurance is a necessity, not an optional expense.” Roy also noted that this move will make families opt for higher coverage amounts since premiums are lower now. Policybazaar and Star Health have already begun giving the early benefit of GST reforms to buyers. This is seen as part of the government’s vision of “Insurance for All by 2047.”
Chartered Accountant explain what nil-rated means
Chartered Accountant Himank Singla from SBHS & Associates explained the difference in simple terms. He said, “Although the applicable GST rate in a nil-rated category is zero, the law treats supplies herein as taxable supplies. This means suppliers can claim full ITC on inputs and input services used and are even eligible for GST refunds on ITC lying in the credit ledger.”
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He explained further that exemption works differently. “Since exempt supplies are treated as non-taxable, businesses are not entitled to claim ITC on inputs and input services used for such activities. Any credit already taken must be proportionately reversed. For insurers, this includes ITC on recurring costs such as rent, IT systems, professional fees, and other business services, hence turning what would otherwise be creditable tax turns into an additional expense,” reported ET.
nil-rating keeps ITC alive and lowers costs, but exemption blocks ITC and makes insurers pay more.
How will it Affect Insurers and customers?
If insurers cannot claim ITC, then their costs will go up because they will have to pay GST on many of their own expenses without relief. Experts warn this could slowly get passed on to customers as higher premiums or fewer benefits. But if nil-rating was applied, then insurers would still get ITC credits and even refunds, which would prevent costs from piling up.
This is why general insurers like Bajaj Allianz, HDFC Ergo and ICICI Lombard are looking closely at whether they can claim ITC on an overall company level. These insurers sell not just health and life policies but also motor, cyber, property, and travel insurance.
These other products will still stay under the 18% GST slab even after September 22. Group insurance policies offered by employers for life and health also remain at 18% GST. Because of this, general insurers want to offset the ITC they lose on health and life policies against the ITC they still get from these other products.
