The GST Council has announced a major change in GST rates for insurance premiums, effective 22nd september 2025. While this is good news for policyholders, insurance companies will face some new compliance requirements. Here’s everything you need to know.
1. GST on Insurance Premiums Is Gone
Currently, health and life insurance premiums are taxed at 18% GST. From 22nd september 2025, there will be no GST on premiums, covering:
- Individual life insurance
- ULIPs (Unit Linked Insurance Plans)
- Endowment plans
- Term insurance
- Reinsurance services
This is expected to directly benefit policyholders by lowering the upfront cost of premiums.
2. Input Tax Credit (ITC) Reversal for Insurance Companies
There’s a catch for insurers:
- Any input tax credit (ITC) accumulated up to 21st September must be reversed.
- ITC accrued can only be used for supplies before 22nd September.
- Supplies on or after 22nd September require proportionate reversal of ITC under the CGST Act 2017.
This applies to all ITC related to goods and services used by insurance companies, including IT platforms, professional services, and branch operations.
3. Expert Views: Complexity and Cost
Experts have highlighted the challenges:
- Rajat Mohan (AMRG & Associates): Reversing unused ITC is complex and may increase costs for insurance companies, even as policyholders get tax benefits.
- Rahul Shekhar (Nangia Andersen LLP): Companies need to prepare for ITC reversals on exempted supplies after the GST rate change.
- Mahesh Jaisingh (Deloitte India): ITC accrued at old rates can be used for supplies before 22nd september, but for exempted supplies after the date, credit must be reversed proportionately.
The consensus is that while the change is consumer-friendly, it could increase operational costs for insurers.
4. How This May Affect Premiums
Insurance companies incur GST on multiple inputs during operations. Previously, they recovered these taxes through ITC while charging 18% GST on premiums.
After GST abolition on premiums:
- Insurers cannot claim ITC on inputs related to insurance services
- This adds to their operational cost
- As a result, customers may not get the full 18% benefit of GST removal
In short, while the headline shows zero GST for policyholders, the actual discount on premiums may be slightly lower due to input cost absorption by insurers.
5. Implementation Timeline
- 21st september 2025: Last day to use ITC for supplies under the old 18% GST regime
- 22nd september 2025: GST on insurance premiums abolished; insurers must reverse applicable ITC
Insurance companies need to update their accounting and billing systems to comply with the new rules and ensure a smooth transition.
6. Conclusion: Benefits With Caveats
The GST abolition on insurance premiums is positive for policyholders, reducing their upfront costs. However, insurers face compliance challenges and increased costs due to ITC reversal, which may slightly offset the intended benefit.
Policyholders should expect some reduction in premiums, though it may not fully equal the 18% GST previously charged.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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