Finance Minister Nirmala Sitharaman on Wednesday announced that the Goods and Services Tax (GST) on health and life insurance has been cut from 18% to zero, effective under the revamped tax structure. The move, approved unanimously by the GST Council, aims to provide relief to families and individuals opting for insurance.
Sitharaman said the step addresses concerns raised in parliament last year about taxing insurance premiums. “After a detailed study and taking stakeholders into confidence, we have come up with this so that families and also people who take individual insurance, get the benefit. Of course, we will make sure that companies pass on this benefit to people who are taking insurance,” she stated.
Why industry fears the cut may be negative
Despite appearing pro-consumer, the insurance industry has flagged risks associated with the cut. According to a CNBC-TV18 report, reducing GST to nil removes the availability of input tax credit (ITC) under the current Act. Insurers use ITC to offset taxes paid on goods and services for operations. Without ITC, companies could face higher costs, which may in turn impact pricing.
To absorb these costs, insurers may reduce agent commissions or trim operational expenses, potentially affecting service delivery. Industry leaders caution that instead of lowering premiums, the zero-GST regime could make insurance less attractive over time if higher operating costs are passed on to policyholders.
Market impact
The development weighed on listed insurance firms and aggregators, with shares of PB Fintech, operator of Policybazaar, coming off intraday highs following the announcement. Investors remain cautious about the long-term impact of the tax change on margins and demand.
GST overhaul in brief
Alongside the insurance rate cut, the GST Council simplified the overall structure from four slabs (5%, 12%, 18%, 28%) to two main slabs — 5% and 18% — with a special 40% rate for luxury goods such as high-end cars, tobacco and cigarettes.
