Whalesbook
A survey conducted by LocalCircles, gathering over 18,000 responses from 301 districts, has revealed that a significant portion of Indian policyholders are not experiencing the intended benefits from the GST reduction on life and health insurance premiums. Approximately 43 percent of policyholders who purchased or renewed individual policies after September 22, 2025, reported that insurers have not passed on the tax savings.
The survey further detailed that only 39 percent of policyholders received the full tax reduction benefit. Alarmingly, 18 percent reported that insurers continued to levy the 18 percent GST, while another 18 percent claimed insurers increased base premiums to offset the tax cut. About 7 percent received only partial benefits, with premiums adjusted upwards, and the remaining 18 percent were unclear.
Many consumers have voiced their concerns on social media, noting that their premiums have risen year-on-year despite identical coverage and no claims. Insurers have often attributed such increases to 'rising medical costs and advancement in treatments.' However, top insurance executives have refuted these claims, asserting that insurers have complied with GST exemption guidelines and that premium adjustments are due to medical inflation and pre-planned product repricing.
The removal of GST from these premiums (from 18% to 0% effective September 22, 2025) was a customer-friendly reform aimed at making insurance more affordable. However, this also meant insurers lost the ability to claim Input Tax Credit (ITC) on various operational expenses, such as agent commissions and vendor services. This withdrawal of ITC is expected to impact insurers' margins, with effects becoming more visible in upcoming quarters.
Life Insurance Corporation of India (LIC) has stated that the loss of ITC is manageable and that increased volumes are expected to compensate for it. Other private insurers like HDFC Life Insurance and ICICI Prudential Life Insurance believe higher volumes might offset ITC losses over time, though margins could face pressure in the short term. Insurers also indicate that immediate premium reductions are not guaranteed, as they might resort to commission restructuring, cost efficiencies, or product repricing to manage higher operational costs.
LocalCircles plans to share the survey findings with enforcement bodies and the Insurance Regulatory and Development Authority of India (IRDAI) for review.
Impact
This news directly impacts the Indian insurance sector by highlighting potential non-compliance or market dynamics that prevent policyholders from realizing cost savings. It can lead to increased scrutiny from regulators, affect consumer trust, and influence investor sentiment towards insurance stocks. The debate over premium adjustments and the impact of GST changes on insurer profitability is crucial for market participants. Rating: 7/10
Difficult Terms Explained:
Input Tax Credit (ITC): This is a credit available to registered businesses for taxes paid on inputs (goods or services) used in their business operations. When GST was removed from insurance premiums, insurers could no longer claim ITC on many of their operational expenses. For example, if an insurer paid GST on office rent, they could no longer claim that GST back as ITC after the change.