Insurance Premiums GST-Free from Sept 22, 2025: Costs May Still Rise

 A GST change exempts individual health and life insurance premiums from tax starting Sept 22, 2025. However, the loss of input tax credit (ITC) may drive insurers’ costs higher, affecting policyholders.

GST Exemption: What Changes for Policyholders

From September 22, 2025, individual health and life insurance premiums are exempt from GST. Policyholders no longer pay GST on premiums for these products, though group insurance policies remain taxable.

While this initially appears positive for customers, the exemption comes with another change: insurers are now ineligible to claim input tax credit (ITC) on many of their expenses.

Loss of ITC and Its Impact

Earlier, insurers could offset the GST they paid on input services such as commissions, office rentals, and brokerage against the GST collected on premiums. This reduced their net tax liability and operational costs.

Under the new framework:

• ITC is not allowed for most services like brokerage, commissions, and office-related expenses.
• ITC is still allowed for reinsurance-related services.
• Any ITC balance had to be used up before September 21, 2025, as per GST rules.

This change removes a key cost adjustment tool for insurers, increasing their overall expense burden.

Possible Outcome for Premiums

Since insurers can no longer offset input taxes, their operational costs are expected to rise. Many reports suggest:

• Public insurers may pass on the full GST exemption to customers.
• Private insurers could look to manage higher costs by reducing intermediary payouts or making other adjustments.

In both cases, policyholders may not see the full benefit of the GST exemption. The likelihood of higher premiums being charged cannot be ruled out.

Read More: GST on Insurance: Why Delaying Premium Payments Beyond September 22 May Not Work in Your Favour.

Key Takeaways

• GST exemption applies only to individual policies; group insurance still attracts GST.
• Insurers lose ITC benefits, except for reinsurance services.
• Costs may rise for insurers, reducing the chance of significant savings for policyholders.
• The long-term impact will depend on how insurers balance costs with pricing strategies.

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