MUMBAI: The insurance sector has welcomed the government decision to completely exempt individual life and health policies from 18% GST, despite opposing the plan earlier citing loss of input tax credit. They said the move will deepen penetration in both the segments and help make the target of insurance for all by 2047 more achievable primarily because of better affordability.
As part of rationalizing the indirect tax regime by making it simpler and easier to comply with, and also to boost the long-missing link of the consumption cog in the growth story, the GST Council unanimously agreed to slash the five-rate regime to three with massive rate reductions. By doing away with the 12% and 28% rates, the Council has reduced tax rates on most items to 5%, and those earlier in the 28% to 18%, but kept the levy on sin goods at a higher 40% sans new cesses.
When it comes to the insurance sector, the Council has exempted individual life and health insurance premia from the 18% bracket, effective September 22. This includes term insurance, Ulips and health policies. For term insurance, the exemption can result in notable cost reduction, making them more affordable.
On the other hand, insurers may lose eligibility for input tax credits. For ULIPs, these products contain a significant investment component hence direct impact of exemption may not necessarily bring in reduction of 18% premia.
For the national insurer LIC, which is also keen to enter the health cover segment through a strategic investment, the tax exemption is a double booster. LIC chief executive R Doraiswamy said exempting individual life policies from 18% GST will make “life insurance more affordable to all citizens and help towards meeting the objective of insurance for all by 2047.”
Naveen Chandra Jha, chief executive of SBI General Insurance, said the tax exemption marks a transformative step toward greater affordability and inclusivity as this reform acts as a timely catalyst to strengthen the ecosystem by addressing one of the biggest barriers to quality healthcare affordability.
“Whether it is making life-saving drugs more accessible or lowering the cost of health insurance, the move directly tackles a long-standing challenge and will enable millions of families to take a crucial step toward financial and medical security,” Jha said, adding, “SBI General will be focused will be on leveraging this opportunity to design affordable, accessible, and customer-centric health insurance solutions, while expanding our reach across rural and semi-urban markets.”
According to HDFC Ergo General Insurance’s Samir Shah, exempting individual health insurance from GST aligns perfectly with the broader ambition of the regulator of insurance for all by 2047, providing a tangible step forward in that direction.
“From a consumer standpoint, the immediate benefit is that it directly translates to enhanced affordability. By reducing the cost barrier, we anticipate a substantial increase in accessibility, making essential health coverage attainable for a wider demographic,” Shah said.
On the loss of input tax credit based on which they were opposing the exemption, he said, “While it’s anticipated that there will be lowering of the premia due to lowering of taxes, we are yet to understand the extent of this reduction as this will also depend on the availability of the input tax credit, which will become clearer over the coming days.”
Tarun Chugh, chief executive of Bajaj Allianz Life, said, “The much-awaited decision to exempt individual life policies from GST is a welcome move and a key milestone for the life insurance industry. It will help bring down the cost of insurance for customers and play a vital role in increasing insurance penetration in the future.”
Rakesh Jain, chief executive of Reliance General Insurance, said the tax exemption on health insurance while allowing insurers to utilise input tax credits is a landmark step that combines consumer benefit with industry growth.
"This reform will make health protection more affordable for millions of families, senior citizens, and small businesses who often find premium to be a stretch. By lowering the cost of entry, it encourages more individuals to seek coverage earlier, thereby strengthening the risk pool and improving the long-term resilience of the sector," he added.
The Confederation of General Insurance Agents Associations said they have been seeking this exemption on individual health insurance since 2017.
“This historic step brings insurance closer to the common man, strengthens financial security for millions of families, and supports the mission of ‘insurance for all by 2047.’ By enhancing accessibility and affordability, it also encourages the development of healthcare facilities, generates employment across the insurance and healthcare sectors, and contributes to building a healthier, resilient nation,” the association said.
According to Anand Roy, chief executive of standalone health insurer Star Health, the tax exemption marks a pivotal shift for the industry as it will reshape the insurance landscape, accelerate penetration, drive higher renewal rates, build deeper customer loyalty and be a critical growth catalyst.
“This also sets the stage for an era of enhanced insurance penetration that has been critically low, making coverage more affordable and accessible, and bringing us closer to the national vision of ‘insurance for all by 2047’ besides supporting the long-term growth of the sector,” Roy said.
Bankim Mapara of Universal Sompo General Insurance said the GST exemption on health insurance is a positive step that will make healthcare more affordable and accessible for millions. Customers will notice the benefit immediately as it will lower their coverage cost, he said. It will motivate more families to secure sufficient health protection and reinforce the role of insurance as a financial safety net against increasing medical costs, he added.
Pankaj Gupta, chief executive of Pramerica Life Insurance, termed the GST exemption as a landmark step that will directly benefit consumers as it will reduce the premium cost for term life and health insurance, making essential protection more accessible to a wider section of society.
It also enables customers to either come under the insurance fold for the first time or enhance their coverage within the same budget, a meaningful advantage in a country where underinsurance remains a concern, Gupta said.
On the investment side, unit-linked products are expected to deliver even better long-term efficiencies. These savings can be reinvested by policyholders, strengthening their financial security further, in a tax advantaged manner, he added.