Nearly two months after the government scrapped GST on individual life and health insurance premiums, a new LocalCircles survey noted that 43 percent of policyholders who purchased or renewed an individual life or health insurance policy after September 22, 2025, say insurers have not passed on the benefit.
Despite this, a large number of consumers say insurers have not translated the benefit into lower premiums. LocalCircles’ survey, which garnered over 18,000 responses across 301 districts, found that only 39 percent of policyholders reported receiving the full tax reduction benefit.
Another 18 percent said insurers continued to levy 18 percent GST, while an additional 18 percent claimed insurers avoided passing on the benefit by increasing base premiums. About 7 percent said only partial benefit was given and premiums were adjusted upward. The remaining 18 percent did not provide a clear answer.
Interestingly, the report also said some consumers even reported paying higher premiums than last year, suggesting that price adjustments may have offset the government’s intended savings for policyholders. Several customers have taken to X (formerly twitter) and said that their premium has still gone up this year despite having exactly the same coverage and making no claims.
Insurers have allegedly attributed the increase to “rising medical costs and advancement in treatments.”
However, top insurance executives that Moneycontrol reached out to have denied such claims, saying insurers have fully complied with the GST exemption guidelines and that any premium adjustments are purely a result of medical inflation and product repricing that were already in the pipeline.
Insurers, on the other hand, appear only partially comfortable with the transition. While large players such as LIC have publicly stated that they can absorb the impact, the broader industry remains wary of margin pressure, evolving cost structures, and potential product-level recalibration. The full implications of the ITC withdrawal are expected to become more visible in the coming quarters as new policy portfolios -- priced without the ITC benefit, with scale up and renewal cycles take effect.
With effect from September 22, 2025, the GST rate on these policies was cut from 18 percent to 0 percent under GST 2.0, a move intended to make insurance more affordable. However, this shift also meant that insurers moved from a taxed supply to an exempt supply, which disqualifies them from claiming ITC on several operational expenses such as agent commissions, vendor services, and rentals.
In its H1 FY26 results, Life Insurance Corporation of India (LIC) described the GST exemption as a customer-friendly reform and expressed optimism that the move would lift insurance penetration further. LIC’s CEO R Duraiswamy during the press call said the impact of losing ITC on new policies remains “manageable,” noting that operational expense assumptions currently stand at less than 1 percent and the company expects increased volumes to compensate for the loss. LIC’s MD & CEO added that the insurer intends to pass the GST benefit through to customers and does not plan to shift additional cost burdens onto agents or distributors.
Other private companies such as Niva Bupa, HDFC Life Insurance and ICICI Prudential Life insurance seem to be of the view that that higher volumes may compensate for the ITC loss over time, though margins could remain under pressure for the next few quarters.
The management of insurance companies, during earnings calls, have also pointed out that the GST exemption will not necessarily translate into immediate premium reductions. Instead, insurers may resort to a combination of commission restructuring, internal cost efficiencies, or calibrated product-level pricing adjustments to offset the higher operational costs arising from the elimination of ITC.
LocalCircles' Founder Sachin Taparia, speaking to Moneycontrol said, the community is likely to share the survey with enforcement bodies and the Insurance Regulatory and Development Authority of India (IRDAI) and urge them to look into it.
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