GST Exemption to be a Drag on Life Insurers Q2FY26 Profitability

Mumbai: The recent GST exemption on life insurance premium is likely to impact the profitability of insurers for the July-September 2025 quarter. With the benefit of Input Tax Benefit not available on their existing book, life insurance companies may report flat or marginally better profit margins even as new sales improve during the period. In September 2025, the life insurance industry witnessed double-digit growth, with new business premiums rising by 14.8 per cent year-on-year to Rs 40,206.7 crore, reversing the 5.2 per cent decline seen in August 2025. This uptick was slightly higher than the 14 per cent growth seen in September 2024. The group was driven by strong momentum in the group business, particularly in the single premium segment, which more than offset the decline in individual premiums. A favourable base effect and the impact of GST reductions aided this.

According to Nischint Chawathe of Kotak Institutional Equities, the Input Tax Credit (ITC) loss for life insurance companies will be about 165-400 bps of the value of new business margins. “We remain hopeful of a pickup in business momentum due to cuts in tariffs in health and term products. However, loss of input tax credit hurts. We consider an increase in expenses due to the loss of ITC distribution commissions and operating expenses, without assuming any sharing of burden with distributors or customers. While the overall impact for listed companies may be manageable, the impact on various product segments and that for unlisted suboptimal companies is unclear.”

Says Saurabh Bhalerao, Associate Director, CareEdge Ratings, “Individual non-single policies continued to fall (in September) due to the base effect and surrender value regulations. This decline is expected to normalise next month onwards. Private players have been able to offset the decline in policies by increasing the premiums received per policy. Meanwhile, the industry reported a 7.6 per cent increase for the first half of the fiscal year, with premiums rising from Rs 1.89 lakh crore in H1FY25 to Rs 2.03 lakh crore in H1FY26. A gradual recovery is expected in FY26, supported by private insurers expanding their reach through deeper geographical penetration and the launch of the Bima Trinity, including the Bima Sugam digital marketplace. Together, these initiatives and regulatory changes are expected to enhance penetration and drive medium to long-term industry growth.”

Prabhudas Lilladher expects 2QFY26 value of new business margins to be range-bound. “With the benefit of input tax credit not available to insurers on their existing book, we expect a drag of 20-100 bps on FY26E Embedded Value across players. In our view, covered companies are likely to mitigate the drag with commission cuts/price hikes and we remain watchful of the same,” it said.