GST exemption boosts life insurance sales 21% in Oct-Nov 2025, margins face ITC hit

• Life insurers saw 21 percent YoY growth after GST exemption revived demand
• Loss of Input Tax Credit may pressure FY26 profit margins despite better sales
• HDFC Life's margin drops 300 bps; Max Financial, SBI Life up 20%+

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India’s private life insurers saw a 21 percent year-on-year growth in October–November 2025 volumes after the goods and services tax (GST) exemption revived demand.

However, the non-availability of Input Tax Credit (ITC) will cause insurers 200-300 bps on FY26E VNB (Value of New Business) Margin, which is key in determining profit from policies sold in a period, according to PL Capital.

The data indicated that although the growth of life insurance companies in Q3 FY26 looks strong, the loss of input tax credit may keep profitability under pressure despite better sales momentum. ITC is the mechanism used by businesses to claim a reduction of tax paid on purchases.

The report cited an example of HDFC Life facing a gross impact of 300 bps on FY26 margin due to the loss of ITC on GST, though it posted a modest growth of 11 percent YoY in October–November 2025.

Insurance analysts reason that insurers cannot claim any ITC on policy premiums, since no GST was paid. Individual life and health insurance premiums are exempt from paying GST with effect from September 22, 2025.

Canara HSBC Life Insurance explains in their official website that “insurers themselves are required to reverse any accumulated ITC that they claimed before this exemption. ITC on insurance premiums for employees in the form of Group insurance or employer-provided benefits continue to attract GST, and in those cases, the usual rules for GST and ITC still apply.”

The report that analysed four life insurers, meant as a suggestion to show how GST exemption is driving sales growth but dampening profit margin, further indicates that Max Financial Services and SBI Life have seen a year-on-year growth of 21 percent and 26 percent, while growth for HDFC Life and IPRU Life remains modest at 11 percent and 8 percent, respectively.

“In our view, covered companies are likely to mitigate the drag with commission cuts. Moreover, strong growth in retail protection volume in H2, improved margin profile in ULIP and repricing in NPAR are likely to offset some of the drag,” the report stated.

PL Capital expects the boost in retail protection volume to provide a strong tailwind for growth in Q3. “This, coupled with a pick-up in credit protect and steady NPAR volume to drive growth in the quarter,” the report added.