A year after India’s GST removal on insurance, consumers are yet to see consistent premium reductions, highlighting challenges in passing on tax benefits amidst rising medical costs and industry dynamics.
A year after India’s goods and services tax overhaul on insurance, the full benefit of the cut still appears to be reaching policyholders unevenly. In September 2025, the GST Council exempted individual life and health insurance from tax, removing the 18% levy that had previously applied and aiming to make cover more affordable and widen protection. But as Business Today has reported, consumers have not consistently seen a matching drop in premiums, especially in health insurance.
The gap between the tax change and the prices people actually pay is partly explained by the way insurers operate. Industry specialists say rising medical costs have kept health premiums under pressure, even as some individual life policies have become cheaper. Tax advisers note that once these policies moved out of GST, insurers also lost input tax credit, which means they can no longer offset the tax they pay on their own business inputs. That can blunt the effect of the exemption and leave room for premiums to fall by less than the full 18%.
The government has been watching the pass-through closely. According to Business Today, the Central Board of Indirect Taxes and Customs tracked the prices of 54 goods for six months after the wider GST rate changes that took effect on 22 September 2025, while the Department of Consumer Affairs enabled grievance redress through the National Consumer Helpline to help customers flag cases where benefits were not passed on. Officials now say the overall picture across commodities has been reassuring, with consumption holding up and the tax base widening.
The finance ministry has also been using the rate cuts to argue that the system is becoming more efficient. Its calculations show the effective tax rate on domestic taxable supplies has fallen to 13.13% from 14.55%, a sign, it says, that lower rates are not necessarily hurting collections. Attention is now turning back to insurance, where the GST Council is expected to consider further steps, including a proposal to let employers claim input tax credit on GST paid for staff insurance premiums. That would not directly affect individual customers, but it could make employer-provided cover cheaper and broaden take-up.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
