Quick Summary
Finance Minister Nirmala Sitharaman's announcement at the 56th GST Council meeting that GST on individual health and life insurance premiums will drop from 18% to 0% starting September 22, 2025, has brought relief to policyholders. However, tax experts caution that the extent of savings will depend on a crucial technical distinction, whether premiums are classified as nil-rated or exempt. Nil-Rated vs Exempt: Why It Matters "Nil-rated supplies are taxable at 0% GST, which still allows insure
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FAQ :
The GST on individual health and life insurance premiums will drop to 0% starting September 22, 2025.
Nil-rated supplies are taxed at 0% GST, allowing insurers to claim input tax credit (ITC). Exempt supplies are outside the GST net, preventing insurers from claiming ITC.
If premiums are classified as exempt, insurers may lose ITC on operating costs, potentially leading to premium increases of 5-6% to cover these unrecoverable taxes.
Standalone health insurers (SAHIs) are considered particularly vulnerable as they may not have other taxable product lines to offset potential ITC losses.
The insurance industry is urging the GST Council to classify these premiums as 'nil-rated' to ensure they can continue to claim input tax credit (ITC).
A final clarification on the classification is expected in the coming weeks.
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