Some ministers have pitched a bold proposal. They want to scrap the 18 percent GST on life and health insurance premiums for individuals. This move aims to make insurance more affordable, especially for middle-class families trying to protect their future and health. It could stimulate demand in a sector that still struggles with low penetration. Under the current system, insurers collect 18 percent GST on every premium. They use most of that to claim input tax credits on their expenses like office rent, commissions and telecom bills. Without those credits, insurers may find their cost structure shaken.
Here lies the catch. Insurers might raise base premiums to offset their losses. That may dilute the supposed benefit of tax relief. Still, most experts agree that consumers would likely pay less overall even if not the full 18 percent.
This proposal heads to the GST Council expected to meet mid-September to October, before Diwali. That period typically flags retail boom. States like Telangana already warn of a ₹9,700-crore revenue hit if exemption goes through. Just how much the government stands to lose remains unclear.
Equity markets responded fast. Insurance stocks and financial indices gained on news of potential tax relief. That reflects investor belief in near-term affordability gains.
Policyholders could benefit. Lower post-tax premiums might make insurance accessible to more people, especially those avoiding cover due to upfront cost. But execution will matter. Unless insurers absorb cost hits, the promised savings may shrink. Expect scrutiny from regulators to ensure true benefit reaches end users.
