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An important decision was taken in the 56th meeting of the GST Council. The council decided to reduce the GST rate on health and life insurance policies from 18% to zero. That is, now there will be no GST on health and life insurance. This exemption will come into effect from 22 September 2025, i.e., the first day of Navratri. After this decision, the general belief was that it would be cheaper to take an insurance policy, because 18% tax would not have to be paid. But a new report has dashed this hope. According to the report of Kotak Institutional Equities Research, instead of benefiting from the abolition of GST on health insurance, customers may have to face an increase of 3 to 5% in the premium.

ITC ends, companies will increase rates
Till now, insurance companies used to take advantage of input tax credit (ITC) on their operational expenses, such as agents' commission, advertising, reinsurance, etc. But with the abolition of GST, these companies will no longer be able to claim ITC. This will worsen their cost structure, and to balance it, they can increase policy rates by 3-5%. The report clearly states that this increase may be necessary to keep the companies' margins neutral. Meaning, the tax relief that was to be given to the customers will directly benefit from the increased premium charged from them instead of the insurance companies.

Cost will be reduced, but the customer will not be affected.
The report also states that the total cost of insurance policies can be reduced by 12-15% due to the removal of GST. However, this reduction will not be felt directly by the customer, because companies can increase the tariff by 3-5% to compensate for not getting ITC. This creates the possibility that the demand for insurance in the market may increase slightly, but the common customer will hardly get the benefit of a lower premium in real terms.

Reinsurance services will also be exempted
The report also states that reinsurance services will also be exempted from GST, but insurance companies will still have to pay GST on many other services. In such a situation, the total tax relief will remain incomplete. Also, since personal insurance policies will be considered as "exempt services", the benefit of Inverted Tax Structure (ITS) will also not be available on them. This simply means that the tax structure that insurance companies will get will not be in their favor and they will compensate for this loss by increasing the premium.

Will this decision not be beneficial for the common people?

Overall, this decision may seem to be a relief in appearance, but the ground effect will be something else. Experts believe that this step of the government can give a shock to the public in the form of expensive premiums by giving them hope of cheap insurance. Especially those people who were excited about this relief may get disappointed in the coming time. The biggest reason for this is that the tax relief that will be received by removing GST will not go directly to the customer's account, but due to the increase in the cost of the companies, they will cover up that relief themselves.

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