GST Relief May Drive Health Insurance Premium Rates
Even while the government has exempted Goods and Services Tax (GST) on individual health insurance policies from September 22, 2025, insurers being deprived of the benefit of Input Tax Credit (ITC) benefit may raise your health insurance premiums by 3-5 per cent.
By : Falaknaaz Syed
Update: 2025-09-05 18:03 GMT
Mumbai: Even while the government has exempted Goods and Services Tax (GST) on individual health insurance policies from September 22, 2025, insurers being deprived of the benefit of Input Tax Credit (ITC) benefit may raise your health insurance premiums by 3-5 per cent. According to experts, operational costs for insurers may rise by 5-7 per cent in the absence of the ITC.
“A back-of-the-envelope calculation suggests that health insurance companies may need to raise tariffs by 3-5 per cent for new and existing policies; this will help the companies compensate for the loss of input tax credit that is currently availed of. At the same time, a 12-15 per cent reduction in price (with 0 per cent GST and 3-5
per cent tariff hikes), for the customer can potentially boost health insurance demand. We await commentary from life and general insurance companies,” said Kotak Institutional Equities in a report.
Individual life and health insurance policies, including reinsurance thereof, will be exempt from GST from September 22, 2025. Currently, health insurance policies are taxed at 18 per cent.
Brokerage firm CLSA estimates that if insurers fully pass on the benefit, premiums could fall by up to 15 per cent, making protection more accessible to households.
Samir Shah, executive director and chief financial officer at HDFC ERGO General Insurance said, “We are closely analysing the implications concerning the input tax credit. 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.”
Effective September 22, the GST Council has exempted term life, unit-linked insurance plans (ULIPs), endowment policies, family floater health covers, and senior citizen plans from GST. Reinsurance linked to these policies has also been exempted. Until now, premiums have attracted varying GST rates. Health insurance, ULIPs, and term life were taxed at 18 per cent, while endowment policies carried 4.5 per cent GST on the first premium and 2.25 per cent on renewal premiums. Single premium annuity policies were taxed at 1.8 per cent.
Companies currently claim input tax credit (ITC) on services utilized; these include distribution commissions, reinsurance and promotions/other operational expenses.
According to Kotak, the impact of the change in the tax rate will likely be higher for Niva Bupa (around 4 per cent) compared to Star Health (one per cent) owing to its higher expenses and ceding ratio. Niva Bupa operates at a higher operating expenses ratio of 39 per cent (31 per cent for Star Health) and a higher ceding ratio of 22 per cent (7 per cent for Star Health). This results in higher GST paid by Niva Bupa, which cannot be offset by input tax credits, as the GST is
dropped to zero percent on retail health policies. The tariff hike required by Care will likely be around 2 per cent.
“We see three risks in this scenario—(1) tariff hikes may not be immediate but with a lag, (2) some of the customers may use the one-month free look-back period to surrender policies sold last month and shift to newer, cheaper ones and (3) multi-line insurance companies may have a lower impact, as some other business lines may partially absorb GST on shared services,” said the report.
per cent tariff hikes), for the customer can potentially boost health insurance demand. We await commentary from life and general insurance companies,” said Kotak Institutional Equities in a report.
Individual life and health insurance policies, including reinsurance thereof, will be exempt from GST from September 22, 2025. Currently, health insurance policies are taxed at 18 per cent.
Brokerage firm CLSA estimates that if insurers fully pass on the benefit, premiums could fall by up to 15 per cent, making protection more accessible to households.
Samir Shah, executive director and chief financial officer at HDFC ERGO General Insurance said, “We are closely analysing the implications concerning the input tax credit. 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.”
Effective September 22, the GST Council has exempted term life, unit-linked insurance plans (ULIPs), endowment policies, family floater health covers, and senior citizen plans from GST. Reinsurance linked to these policies has also been exempted. Until now, premiums have attracted varying GST rates. Health insurance, ULIPs, and term life were taxed at 18 per cent, while endowment policies carried 4.5 per cent GST on the first premium and 2.25 per cent on renewal premiums. Single premium annuity policies were taxed at 1.8 per cent.
Companies currently claim input tax credit (ITC) on services utilized; these include distribution commissions, reinsurance and promotions/other operational expenses.
According to Kotak, the impact of the change in the tax rate will likely be higher for Niva Bupa (around 4 per cent) compared to Star Health (one per cent) owing to its higher expenses and ceding ratio. Niva Bupa operates at a higher operating expenses ratio of 39 per cent (31 per cent for Star Health) and a higher ceding ratio of 22 per cent (7 per cent for Star Health). This results in higher GST paid by Niva Bupa, which cannot be offset by input tax credits, as the GST is
dropped to zero percent on retail health policies. The tariff hike required by Care will likely be around 2 per cent.
“We see three risks in this scenario—(1) tariff hikes may not be immediate but with a lag, (2) some of the customers may use the one-month free look-back period to surrender policies sold last month and shift to newer, cheaper ones and (3) multi-line insurance companies may have a lower impact, as some other business lines may partially absorb GST on shared services,” said the report.