Zero GST on insurance coverage will enhance protection, says trade

The GST Council’s determination to carry down the GST on particular person life and medical insurance insurance policies from 18% to zero will make extra households go for medical cowl, mentioned analysts and trade executives. Insurance cowl will ease burden on households when medical inflation is rising sharply and is unchecked, they mentioned.

However, they identified that scrapping the tax on insurance coverage providers would imply that insurers would lose entry to enter tax credit on bills linked to such insurance policies, thereby impacting the earnings of firms.

‘Transformative push’

Terming the GST Council’s determination a “much-needed reform”, Joydeep Saha, managing director and chief government officer of ManipalCigna Health Insurance mentioned it might assist tens of millions of households safeguard themselves in opposition to unexpected medical bills with out worrying about affordability, at a time when medical prices and healthcare inflation are on the rise. “The reform won’t solely profit current prospects but in addition empower extra households to go for medical insurance protection,” Mr. Saha mentioned.

“This transfer will encourage higher penetration, particularly amongst first-time consumers and underserved sections of society. For the trade, it represents a significant alternative to bridge the safety hole and innovate in product choices. Overall, we see this as a transformative push for higher monetary inclusion and societal well-being,” he mentioned. 

The GST Council on Wednesday (September 3, 2025) introduced an entire GST exemption on particular person life and medical insurance insurance policies. This change will apply to premiums on all particular person life insurance coverage, whether or not pure safety or unit-linked, and to particular person medical insurance, together with household floater and senior citizen plans. 

Kicks in on Sept. 22

The exemption is scheduled to come back into drive on September 22, 2025, coinciding with the transition to a streamlined two-rate GST construction. 

“The exemption additionally extends to the reinsurance of those particular person insurance policies, making certain tax neutrality throughout the danger administration chain. However, the profit is proscribed to particular person covers. Group insurance coverage insurance policies, resembling employer-sponsored well being or life schemes, will proceed to draw 18% GST with no enter tax credit score accessible to the employers,” mentioned Jignesh Ghelani, Partner at Dhruva Advisors.

“This makes it clear that the coverage intent is to immediately ease prices for households reasonably than institutional consumers,” he mentioned.

While decrease premiums are anticipated to stimulate demand and increase the policyholder base, the classification of those providers as “exempt” implies that insurers will lose entry to enter tax credit on bills linked to such insurance policies. 

“Insurers will probably be required to reverse enter tax credit relating to those exempt outputs. This embedded tax might ultimately feed into the costing construction, thereby impacting the earnings of the businesses. The firms will, subsequently, be required to deep dive into its value construction and analyse the general influence on the enterprise, Mr. Ghelani added. 

‘Behavioural nudge’

Ankit Agarwal, founder and CEO, InsuranceDekho, known as the GST exemption a “highly effective and welcome” step in direction of mainstreaming insurance coverage adoption and advancing the nationwide purpose of ‘Insurance for All’. “This transfer not solely reduces monetary stress on current policyholders but in addition lowers the entry barrier for tens of millions who’ve lengthy remained uninsured. More than a tax reform, this can be a behavioural nudge that may encourage households throughout Bharat to prioritise safety, Mr. Agarwal mentioned. 

However, Vaqarjaved Khan, senior elementary analyst, Angel One Ltd, mentioned that in merchandise resembling Unit Linked Insurance Plans, the GST exemption could not essentially end in 18% discount in complete premium, as ULIPs include a major funding element.

Ashok P. Hinduja, chairman, Hinduja Group of Companies (India), mentioned steps like scrapping GST on life and medical insurance insurance policies will “show to be revolutionary on this regard”.