From September 22, 2025, individual health and life insurance premiums in India will be exempt from GST, except for group policies.
Insurers cannot claim Input Tax Credit (ITC) on operational expenses like brokerage, commissions, office rent, and related services after this date.
Individual Health and Life Insurance Premiums in India to Become GST-Exempt from September 22, 2025
Sarita Joshi, Product Head at Probus Insurance, said: “The ITC window has closed on almost all expenditures, such as TPA fees, administration, and IT-related expenses, and henceforth, will require reversal, since the output service is exempt.”
Any unused ITC must be used by September 21, 2025; thereafter, it must be reversed according to the CGST Act, 2017.
ITC is still allowed for reinsurance-related services, but all other input services must be reversed.
Previously, ITC helped insurers offset GST paid on inputs against premiums collected. With the exemption, insurers cannot adjust GST paid on input services, raising operational costs.
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Insurers may pass these costs onto policyholders, potentially increasing premiums, though public insurers are expected to pass GST savings fully, while private insurers may reduce intermediary costs like agent commissions to ensure benefits reach customers.
CA Deepak Agrawal explained: “Brokerage, commission remains taxable, and ITC for the same has to be reversed as output service is exempt. For instance, if LIC takes reinsurance from GIC, it will be eligible to claim ITC on this input service. However, for other input services such as brokerage paid, commissions, etc, ITC reversal will apply.”
Yogesh Agarwal, CEO of Onsurity, added: “Commissions, brokerage, and all other input services related to individual policies will no longer be eligible for ITC because the final policy, which is now exempt, removes the basis for such credits. Insurers must reverse any unused ITC on these services as of the effective date.”
For example, on a Rs 1,000 premium, agent commission might be Rs 300, brokerage Rs 200, IT expenses Rs 200, and reinsurance Rs 100. GST on input services totals Rs 126.
With no GST on premiums, insurers cannot use this Rs 126 ITC, and it becomes part of operational cost, potentially passed to policyholders.
Agrawal emphasized: “GST credits linked to commissions and intermediary services must be identified and reversed. Only credits tied to reinsurance services remain claimable.”
The GST exemption benefits policyholders but may increase costs for insurers if ITC reversals are not carefully managed.
