GST rate cut on insurance: Should you wait till September 22 to buy new policy?

The Centre has removed GST on all individual life insurance policies, whether term life, ULIP or endowment policies and subsequent reinsurance; and on family floater policies and policies for senior citizens and reinsurance thereof, from September 22, 2025, onwards.

The move, announced by Finance Minister Nirmala Sitharaman, is aimed at reducing entry barrier price for life insurance in India, which is currently an underserved market.

We examine when would be the best time for first-time policy buyers and renewals by policyholders, how much pass-through you could get, and whether there are chances of a rate hike in the future.

Can GST exemption make insurance products more affordable?

Most industry leaders and observers say yes. Removing the previous 18 per cent GST on insurance premiums makes insurance products more affordable and can also help expand penetration, they feel.

The zero GST is applicable to all individual life insurance policies, whether term life, ULIP or endowment policies and subsequent reinsurance; and to family floater policies and policies for senior citizens and reinsurance thereof, according to Sitharaman's announcement on September 3.

R Doraiswamy, CEO and MD of the Life Insurance Corporation of India, called it a “visionary initiative” that could help realise the goal of insurance for all by 2047; while Tapan Singhel, MD and CEO of Bajaj Allianz General Insurance, feels that the step “directly benefits citizens and eases the financial burden on families”.

Samir Shah, Executive Director and CFO of HDFC ERGO General Insurance, concurs that for policyholders, the immediate benefit is enhanced affordability.

Jignesh Ghelani, Partner at Dhruva Advisors, noted that since the benefit is limited to individual covers, group insurance policies, such as employer-sponsored health or life schemes, will continue to attract 18 per cent GST with no ITC available to the employers. “This makes it clear that the policy intent is to directly ease costs for households rather than institutional buyers,” Ghelani added.

Should customers wait till September 22 to take a new insurance policy?

It would be wise. According to Akash Parwal, CEO of Square Insurance, at present, the 18 per cent GST increases the cost of a  ₹25,000 health policy by around  ₹4,500, which can discourage middle-class households and younger buyers from purchasing coverage.

A spokesperson for Niva Bupa Health Insurance told Livemint that the company is working with the IT team to implement the GST exemption benefit for customers from September 22. “We are currently working with our backend IT team to get it implemented so that we can pass on the GST exemption benefit starting September 22 itself,” the company said.

What about existing policyholders looking to renew? Niva Bupa clarified that the exemption “will apply to new policies as well as those up for renewal”.

How much benefit of the rate cut should customers expect to get? Niva Bupa said that while the “exact calculation” is yet to be completed, the aim is that “a majority percentage of the 18 per cent GST which was earlier levied on health insurance will now be passed on to the customers”.

Could costs eventually increase?

Ghelani pointed out that while the lower premiums are expected to stimulate demand and expand the policyholder base, “the classification of these services as ‘exempt’ means that insurers will lose access to input tax credits on expenses linked to such policies”.

“Insurers will be required to reverse ITC relating to these exempt outputs. This embedded tax could eventually feed into the costing structure, thereby impacting the profits of the company. The companies will therefore be required to deep dive into their cost structure and analyse the overall impact on the business,” he observed.

Samir Shah of HDFC ERGO said they are “closely analysing the implications concerning the input tax credit”, adding, “While it is anticipated that there will be lowering of the premiums due to lowering of the taxes, we are yet to understand the extent of this reduction as this will also depend upon availability of the input tax credit, which will become clearer over the coming days.”

The Niva Bupa spokesperson shared a similar view. “While there will be loss to insurers on account of input tax credit, we are currently evaluating the extent of this loss.”

“It is to be noted that GST on reinsurance is also exempted, which is a significant percentage of total expenses made by insurers. We are currently assessing the impact which the rest of the components that have not been exempted will have on the input tax credit loss. Our intention would be to pass maximum benefit to the consumer,” they added.

But Parwal was more optimistic that while insurers would lose access to ITC, “the reduction in premiums would accrue to customers, as pricing is tightly regulated by IRDAI. Insurers are therefore likely to respond by improving efficiency, expanding digital processes, and optimising operations to manage costs”.

According to Kotak Institutional Equities, the GST relief may drive a modest tariff hike in health insurance by 3-5 per cent, as this will help the companies compensate for ITC loss. At the same time, a 12-15 per cent reduction in price for the customer can potentially boost health insurance demand.