GST exemption on insurance is estimated to cost ₹9,900 crore, sources said. States cautioned that insurance companies should not make windfall gains.
GST Council, in its meeting on Wednesday, recommended that all individual health insurance, along with reinsurance and all individual life insurance, along with reinsurance, be fully exempted. As of date, premiums for these insurance products attract GST at 18 per cent with ITC (Input Tax Credit). The new rate is proposed to be made effective from September 22
Most states back move, Punjab & Tamil Nadu dissent
This recommendation is based on the proposal by the Central Government, which was endorsed by a Group of Ministers (GoM) before the Council meeting. “During the GoM meeting, it was informed that the impact on revenue will be to the tune of ₹9,900 crores approximately, if the Union’s proposals are accepted for recommendations,” an official privy to the discussion said. Further, he said that barring Punjab & Tamil Nadu, all States of the GoM agreed on the Centre’s proposal about exemption on individual health and life insurance.
States caution insurers must pass benefits to consumers
According to him, states believed that the full benefit of the exemption would only accrue if the resulting benefit was passed on to consumers. “A few States have also raised an issue that the insurance companies should not make windfall gains by not passing the benefits of this exemption to the policy holder, in view of the face that same has not been expressly addressed by the regulator,” he said.
States also wanted to ensure that the primary beneficiary of the exemption should be the policyholder and not the company. Some also expressed concerns about how the benefit of the exemption will be passed on to the policyholder. This is critical as there is no anti profiteering mechanism available since April 1, 2025, the official added.
Industry hails reform as boost to affordability, access
Meanwhile, industry players feel that with the latest measures, affordability will increase. According to Rakesh Jain, CEO at Reliance General Insurance, this reform will make health protection more affordable for millions of families, senior citizens, and small businesses who often find premiums 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 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,” he said.
Naveen Chandra Jha, MD & CEO, SBI General Insurance, says, 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. For the health insurance sector, this change comes at a pivotal moment. “Our focus 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 India,” he said.
Source: The Hindu businessline
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