The GST Council’s move to exempt individual health insurance premiums while continuing to levy 18 percent tax on group policies may alter the dynamics of corporate health coverage, employee benefits, and insurer strategies, experts have said.
Starting September 22, 2025, individual health and life insurance premiums will attract nil GST, as compared to 18 percent earlier. In contrast, group health and life insurance policies continue to be taxed at 18 percent, creating a significant cost difference between retail and corporate products.
This is expected to result in individual policies immediately becoming more affordable for customers, while companies offering group covers for employees will continue to pay tax, making these plans relatively costlier.
Industry executives and experts told Moneycontrol that this disparity between retail and group insurance products could shape the way companies structure health benefits for salaried employees and how insurers balance the two segments.
A senior executive on condition of anonymity said that some employers may explore alternative models such as reducing group coverage size and giving employees the option to buy individual retail policies, which will now be cheaper. Another possible model, according to a senior executive, is offering allowances or reimbursements for individual insurance policy purchases rather than maintaining large group plans.
“This creates a potential scenario where companies evaluate whether continuing with expensive group covers makes sense when employees can buy individual plans at a lower cost,” the executive added.
According to an AM Best report, India’s health insurance market has long suffered from underwriting strain, particularly in group coverage. The report showed that in FY25, retail health insurance grew around 17 percent on-year compared to about 5 percent in the group health segment. This divergence reflects stronger consumer demand and more manageable premiums in retail, in contrast to dwindling growth momentum in group plans.
Read More: GST exemption on health and life insurance: Will premiums actually become cheaper?
Traditionally, group insurance operates on thin margins but large volumes, while individual policies require higher acquisition and underwriting costs but offer better pricing power.
“Insurers will need to adapt. Group products come with scale advantages, but retail policies are now at a clear price advantage,” said one analyst.
Moreover, for employees, particularly those in the entry-level salaried segment, the shift could mean greater responsibility for their own health coverage.
While retail plans will be cheaper post-GST exemption, they also require individual underwriting and medical checks, unlike group policies, where risk is pooled.
This, according to industry sources, could lead to more employees purchasing standalone retail policies for comprehensive coverage, and a greater demand for simplified retail products with quick issuance and low documentation.
Read More: Insurance premiums may rise 1-4% despite GST cut to zero
Schemes for affinity groups, or those formed on common interest and non-employer employee associations, offered by banks and fintech platforms may also see some pressure, according to sources, which may lose some appeal compared to GST-exempt retail policies that now come with a clear pricing advantage.
“Group policies typically offer low administrative costs per member and stable renewal volumes, but the continued GST levy increases their overall cost burden. In contrast, individual policies involve higher acquisition and underwriting expenses and require more documentation, yet they now hold a significant tax advantage post-exemption and present insurers with opportunities for cross-selling additional financial products,” industry sources told Moneycontrol.
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