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Private sector general insurers are beginning to pass on their unclaimed input tax credit (ITC) burden to distributors by trimming commissions and incentives across select product lines, in what industry sources describe as a cost-balancing move to cushion profitability pressures.
Following a reduction in goods and services tax (GST) rates on individual health insurance premiums to nil from 18 per cent, and changes to input tax credit (ITC) norms with effect from October 1, 2025, some of the non-life insurers like ICICI Lombard General Insurance, Care Health Insurance, and Aditya Birla Health Insurance have reduced their commission payout to distributors on retail health insurance policies, sources said.
The government has asked life and non-life insurance companies to ensure that benefits of the goods and services tax (GST) exemption approved earlier this month are fully passed on to both existing and prospective policyholders.
GST exemption on insurance is estimated to cost ₹9,900 crore, sources said. States cautioned that insurance companies should not make windfall gains.
The Goods and Services Tax (GST) Council has brought good news for all insurance consumers. GST rates for insurance have been reduced from 18% to nil, bringing relief to policyholders. This has led some consumers to consider delaying premium payments.
A brewing row between the insurance sector and policymakers over the Goods and Services Tax (GST) shows growing tension.
The government aims to slash Goods and Services Tax (GST) on insurance premiums to 5% or even zero from 18% currently, said a Reuters report citing sources.
The Goods and Services Tax (GST) Council will likely meet in June or early July to consider reducing the tax rate on health and life insurance to 5% with input tax credit (ITC) from 18%, among other rationalisations.
The Insurance Regulatory and Development Authority of India (IRDAI) has submitted its comments on goods and services tax (GST) relief on premiums paid for life and health insurance, paving the way for a final decision. The group of ministers (GoM) on insurance is likely to meet in April to finalise its recommendations for the GST Council. The council is expected to consider the proposals at its next meeting in May, a senior government official said.
The Indian insurance industry is bracing for extended legal scrutiny from tax authorities after the GST Adjudicating Authority upheld a tax demand of Rs 2,400 crore against HDFC Life Insurance. The ruling, stemming from allegations of wrongful claims on ITC related to agent commissions, could set a precedent that pushes the industry’s total tax liability beyond Rs 5,500 crore, according to a report by The Economic Times.