The Life Insurance Council - a forum of industry stakeholders - is expected to seek clarity from the Insurance Regulatory and Development Authority of India (IRDAI) and the Centre on key issues including the input tax credit (ITC) and GST exemption for select insurance products, Moneycontrol has learnt from people familiar with the developments.
The council could seek details around the treatment of advance premium, scope of products covered under exemption and the continued applicability of GST on agent commissions.
Industry executives on condition of anonymity said that key issues still remain unresolved despite a meeting last week, including whether the exemption will apply to policy renewals and advance premiums collected before the notification takes effect.
“If an advance premium was collected prior to the exemption but applies to a coverage period after the exemption, do insurers need to refund the GST component? Similarly, if a renewal occurs after the exemption date, should GST still apply?” one industry representative said.
Sources said that the insurers may be fearing the possibility of customer grievances, if refunds are delayed or denied, while actuarial teams face the challenge of recalculating projections for policies spanning across the transition period.
A report by CLSA said that the decision to remove GST on certain insurance categories is expected to dent insurers’ profitability, primarily through their back book. With renewal premiums comprising 53-63 percent of total premiums for life insurers, the inability to reprice existing policies could leave companies with little room to absorb costs.
“Renewals form a substantial share of revenue streams, and sudden tax exemptions without corresponding repricing flexibility create an earnings mismatch,” the CLSA note said.
Moneycontrol had earlier reported that ambiguity persists over whether the change constitutes a ‘ tax exemption’ or a ‘zero percent’ tax, two terms with significantly different implications. LIC is also in discussions with the government to seek clarity on this matter.
Advance premium collections are common in the industry, particularly for annual and multi-year policies. If these premiums were collected before the exemption date but cover a post-exemption period, insurers are unsure whether a GST refund obligation arises. On the other hand, renewal premiums due after the exemption date may not attract GST, raising questions about system upgrades and process timelines for implementing the change.
“The systems of insurers are configured to automatically calculate GST. A sudden exemption requires major IT changes, which cannot happen overnight. Until clarity is issued, companies risk compliance lapses,” an acturial expert told Moneycontrol.
Adding to the complexity is the partial nature of the exemption, said sources.
While GST has been removed on insurance policies and reinsurance transactions, it continues to be levied on commissions paid to agents. Insurers argue that this partial exemption may affect compliance, as companies will still have to track, calculate and remit GST for commissions even though the primary product is exempt.
"This not only may increase administrative overhead but also poses system-related challenges, requiring modifications to segregate taxable and exempt components within the same transaction cycle," said one executive.
Passing this additional cost on to policyholders is not an option for existing products, as pricing and terms are locked in, the executive added.
After its 56th meeting on September 4, 2025, the Goods and Services Tax (GST) Council announced an exemption on all health and life insurance premiums as part of the Centre’s indirect tax rationalisation initiative. While the industry has welcomed the move, concerns remain over potential premium hikes due to the loss of input tax credit (ITC) for insurers.
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