04 Sep , 2025 By : Debdeep Gupta
Shares of HDFC Life, SBI Life, Life Insurance Corporation of India (LIC), ICICI Prudential Life, New India Assurance, ICICI Lombard, Star Health surged in the range of 2-3 percent on September 4 after the 56th GST Council, chaired by finance minister Nirmala Sitharaman, slashed tax rates on individual health and life insurance premiums, cutting the tax from 18 percent to zero.
While this poses as a benefit for consumers, brokerages argued that uncertainty remains around input tax credit relief for insurers.
The GST on health and life Insurance was been a contentious issue for long now, with strong support to reduce the GST rate on these. At the same time central and state governments had feared the loss of revenue from these growing lines, domestic brokerage Emkay Global had noted.
Even as this move has brought more questions than answers regarding the breadth of coverage of the products category and the implications for Input Tax Credit (ITC), one thing that is abundantly clear is that prices of Retail Health and Life Insurance products will come down for customers and any benefits from GST cuts must be passed by insurers to customers, the brokerage added.
However, even as the benefits of the GST cuts will be passed down to consumers, brokerages argue that insurers will have to undertake price-hikes to offset the loss of ITC, as insurers will now bear GST on expenses without being able to claim input credit.
To offset these costs, CLSA expects insurers to hike premiums by 1-4 percent. SBI Life, with the lowest operating expense ratio, may require only a minimal price increase. Nevertheless, this will be lower for consumers, as compared to paying GST on the premiums.
Here's an example on how the ITC benefit works for insurers:
* For example, if the premium is Rs 100, with 18 percent GST, an insurance player collects Rs 118.
* If the insurer is incurring Rs 35 as expense on commissions and other services, they will pay Rs 6.3 as GST, which is 18 percent of Rs 35.
* The insurer offsets this Rs 6.3 against GST collected and deposits only Rs 11.7 with the government.
* Now, with the premium exempt, the ITC benefit is gone. As a result, insurers may raise base premium to Rs 106.3 to recover cost.
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