8–10% ITC cushion remains critical factor in determining whether premiums actually fall: Mayank Bathwal of Aditya Birla Health Insurance

GST exemption implications on premium

Insurance is in the spotlight with the government’s proposal to exempt health and life premiums from the 18% GST. While the step could make policies more affordable, industry leaders say that the actual benefit for policyholders will hinge on how input tax credits (ITC) are handled.

Currently, insurers adjust about 8–10% of input tax credit against the 18% GST charged on premiums. This ITC comes from expenses like technology, services, or other business inputs on which insurers already pay GST. By offsetting these credits, insurers are able to pass on partial relief to customers. If GST is simply exempted without retaining ITC, insurers say that premiums may not fall by the full 18%.

"Today there is an input tax credit of about 8 to 10% that we are adjust against 18% GST. We'll have to see whether the rates will come down on the inputs also. So it's a bit of a complex issue that we'll have to finally get an answer. Once we get all of the details, the reduction could be in the range of full or partial , depending on what part of input credit tax we are able to get as an industry," says Mayank Bathwal, CEO of Aditya Birla Health Insurance.

Bathwal points out that GST is a significant component of the premiums customers pay today. “The whole conversation around GST changes is a very important discussion that's on right now. Today, we have an 18% GST rate, which means that it's a pretty large part of our overall premium that consumers pay. So we really welcome the government's decision to review this and bring it down,” he said.

Experts say that unless insurers continue to benefit from ITC, the industry will be forced to absorb higher costs. That could blunt the very relief policymakers intend to provide.

“The GST exemption on insurance policies is a welcome move, as it reduces the burden on policyholders and makes insurance more affordable. This benefit will hold true only if the exemption is accompanied by the availability of input credit for insurance companies,” said Rushabh Gandhi, MD and CEO, IndiaFirst Life.

“Without it, the additional cost from input credit reversal will likely be factored into the pricing of insurance policies, offsetting a large part of the intended relief for customers,” Gandhi added.

For now, the 8–10% ITC cushion remains the critical factor that will determine whether premiums actually fall, or whether GST exemption only looks good on paper.