In September 2025, the Goods and Services Tax (GST) Council implemented a significant change, exempting individual life and health insurance policies from the previously applied 18% GST. The primary objective behind this move was to make insurance more accessible and affordable for citizens, thereby expanding coverage across the nation.
Consumers See Limited Benefits
However, one year on, government sources express concern that the intended benefits have not fully reached consumers. While the government has largely been satisfied with price reductions across other commodities—noting a fall in the effective tax rate on domestic taxable supplies from 14.55% to 13.13%—the insurance sector appears to be an exception.
According to finance ministry sources, premiums for many insurance policies have not declined in line with the tax cut, and in some cases, have even increased. This has led to a situation where consumers are still awaiting the full financial advantage that the GST rationalisation was meant to provide.
Industry Cites Other Factors
Industry experts offer a different perspective, particularly regarding health insurance premiums. They attribute the rise in these costs to factors such as medical inflation, which significantly impacts the price of healthcare services and, consequently, insurance coverage. Conversely, industry representatives note that premiums for individual life policies have seen a decline.
Government Monitoring and Future Action
Following the GST rate cuts that came into effect on September 22, 2025, the Central Board of Indirect Taxes and Customs (CBIC) monitored the prices of 54 goods for six months to ensure compliance. Additionally, the Department of Consumer Affairs established a GST grievance redressal mechanism through the National Consumer Helpline to address instances where benefits were not passed on to consumers.
Looking ahead, the GST Council is expected to convene on October 8, 2026, to discuss further proposals aimed at broadening insurance coverage. Among these is a significant proposal to permit employers to claim input tax credit for GST paid on insurance premiums for their employees, a move that could indirectly benefit workers and further incentivize insurance uptake.