The 18% GST on health and life insurance premiums will be removed from September 22, providing significant relief to policyholders. However, if your policy renewal date is before September 22, delaying premium payment to avoid GST could be detrimental and may lead to the loss of benefits like the no-claim bonus.
Insurance Policy Premium: The government has announced the complete removal of GST on health and life insurance premiums effective September 22, 2025. Currently, an 18% GST is levied on these premiums, but under the new regulations, policyholders will no longer have to pay this tax. However, those whose policy renewal dates are before September 22 and for whom the invoice has already been generated will have to pay GST according to the old rules. Delaying payment may also cause customers to forfeit benefits such as the no-claim bonus and renewal discount.
GST Applicable on Renewals Before September 22
If your policy renewal date falls before September 22, delaying premium payment could prove disadvantageous. Many individuals are withholding payments, expecting to benefit from GST exemption after September 22. However, if the insurance company has already issued the invoice and your policy is due for renewal before September 22, you will be obligated to pay the GST.
Expected Savings
After September 22, when GST is eliminated, individuals will see a direct financial benefit. For instance, if the current premium for a health or life insurance policy is ₹1000, the total amount including 18% GST would be ₹1180. However, with the implementation of the new rules, this same premium will be payable at just ₹1000. This will lead to a reduction in policyholders' expenses.
Impact on No-Claim Bonus and Discounts
Failure to pay premiums on time can result in the forfeiture of several benefits, including the no-claim bonus and renewal discounts. Insurance companies typically extend these benefits only when premiums are paid within the stipulated deadlines. Therefore, delaying payment in an attempt to save on GST could backfire significantly.
Insurance companies issue premium invoices in advance. If the invoice has been generated before September 22, you will be required to pay GST even if the payment is made after this date. Conversely, you will only receive the GST exemption if the invoice is issued on or after September 22. This means that the actual renewal date and the invoice generation date are the crucial factors, not the date of your payment.
New Challenges for Insurance Companies
With the removal of GST, insurance companies will no longer be able to avail input tax credit (ITC). Previously, companies could claim ITC on expenses incurred for agent commissions, reinsurance, and advertisements. However, this facility will now cease to exist. Consequently, companies are concerned about an increase in their operational costs.
Possibility of Premium Rate Adjustments
To offset their rising expenses, insurance companies may slightly increase premium rates. While this may not entirely negate the benefit of tax removal, customers might not experience the full extent of the anticipated direct savings. Experts suggest that companies could increase the base premium to cover their operational costs.
Relief for Customers
The most significant relief for customers currently is that they will no longer have to pay an additional 18% tax when purchasing or renewing a policy. This will make policies such as health and life insurance more affordable for individuals. It will be particularly beneficial for those who pay substantial premiums for extended periods annually.
Increased Demand in the Insurance Sector
Experts believe that the abolition of GST could lead to an increase in the demand for health and life insurance policies. Previously, the tax factor deterred many individuals from purchasing policies. However, with the reduced premium costs, a larger segment of the population is likely to be attracted towards buying insurance.
