The reform will encourage more individuals to seek coverage earlier.  | Photo Credit: Getty Images

Will the recent waiver of Goods and Services Tax (GST) on individual life and health cover be a catalyst for a new phase of growth in the insurance industry and benefit commoners?

This has been a hot topic for discussion among diverse stakeholders in the life and non-life sectors, since the GST Council’s decision to rationalise rates.

A decade-old demand, the GST Council announced its decision during its 56th meeting during September 3-4, 2025.

Though it has been on the cards for the last two years at least, the removal of 18 per cent GST on insurance is a bold move by the government, given that it would trim its revenues.

The rate rationalisation is projected to cost the government anywhere between ₹18,443 crore and ₹48,000 crore annually.

A research report of the State Bank of India (SBI), however, has pegged revenue loss at a minimal ₹3,700 crore, given the growth and consumption boost triggered by rate rationalisation. This, the report stated, would have no impact on the fiscal deficit.

Pricing

On the face of it, zero GST on buying life and health cover will automatically result in savings for a buyer.

Even as the GST Council’s recommendations are set to take effect from September 22, 2025, the insurers are tight-lipped on the benefit for buyers of life and health cover.

“Post the GST exemption, life insurance policies shall become more affordable, which will drive higher penetration, especially among first-time buyers and underserved segments,’‘ Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance told businessline.

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, according to Naveen Chandra Jha, MD & CEO, SBI General Insurance.

Cost escalation

Industry captains, however, expressed concerns over the possible escalation of operational costs for insurers in view of the non-availability of input tax credit (ITC) on certain expenses in a zero-GST regime.

It has been two weeks since the Council’s announcement, but the government is yet to provide clarity on the matter, said insurers.

In the case of non-availability of ITC, insurance companies may prefer to pass on some burden to the customers which can offset the gain arising from the removal of 18 per cent GST on the premium.

Despite the shortcomings, the GST reforms act as a timely catalyst to strengthen the ecosystem by addressing one of the biggest barriers to quality healthcare – affordability.

The insurers will now focus on leveraging the opportunity to design affordable, accessible and customer-centric insurance solutions, while expanding their reach across rural and semi-urban India.

By lowering the cost of entry, the GST reform will encourage more individuals to seek coverage earlier, thereby strengthening the risk pool and improving the long-term resilience of the insurance sector.

Insurance is not just a financial product but a safeguard for households against rising healthcare costs and unforeseen emergencies, and this measure will help embed it more deeply into financial planning.

“We view this as a forward-looking reform that creates a win-win scenario for both consumers and insurers, and one that will contribute meaningfully to the journey of building a healthier and more financially secure India,” said Rakesh Jain, CEO, Reliance General Insurance. 

Chugh noted that there could be more innovation as well, with simpler and digital-first solutions that make insurance easier to understand, buy, and manage.

Collectively, these changes will help the industry scale sustainably while delivering affordable and customer-centric protection to every Indian household, he said.

Rollout

There will be challenges in rolling out revised premia when the new norms come into effect. There are still many knots which are yet to be untied to take the benefits of the 18 per cent GST exemption to the policyholders as matters like Input Tax Credit (ITC) have to be resolved.

There is a need for transparency in premium pricing structures and the Insurance Regulatory and Development Authority of India (IRDAI) along with the Life and General Insurance Councils will have to ensure a smooth transition to the new regime to realise the vision of Insurance for all by 2047.

In FY25, life insurance industry’s new business premium stood at ₹3.97 lakh crore, posting a 5.13 per cent year-on-year growth, according to Life Insurance Council data.

Health insurance premium, the largest segment in the non-life industry, grew 8.98 per cent in FY25 at ₹1.18 lakh crore.

In the current financial year, growth in both the aforementioned insurance segments is likely to get a boost from the tax reforms.

Published on September 15, 2025