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The GST Council has abolished 18% GST levied on individual life and health insurance products

ICICIdirect Research 05 Sep 2025 DISCLAIMER

The GST Council has abolished 18% GST levied on individual life and health insurance products. This move is anticipated to structurally reduce premium outgo, thereby improving affordability, driving penetration, and creating long-term growth levers for insurance players, while indirectly supporting credit growth momentum for banks/NBFCs.

Life insurance – Exemption of GST on term, ULIP and endowment policies (previously taxed at 18%) enhances product affordability, supports insurance penetration targets (“Insurance for All”), thereby driving premium accretion for life insurers. HDFC Life and SBI Life welcomed the government’s move to remove 18% GST on individual life insurance policies and expects this reform to be accretive to its Value of New Business (VNB) over time, with impact of <0.5% anticipated on Embedded Value (EV).

General insurance - Removal of GST on health insurance is seen to boost penetration by improving affordability and thus sustain healthy business growth for standalone health insurance, though impact of input tax credit needs to be ascertained. Multi-line insurers seem better placed to benefit from boost to health insurance segment (owing to exemption of GST) and auto segment (driven by revival in auto volumes)

That said, removal of input tax credit will raise costs for insurers, squeezing margins and embedded value in the near term. While customers will see reduction in premium, impact of removal of input tax credit is expected to be shared across stakeholders including insurer, distributor and customer owing to repricing of premium and commission.

Banks/ NBFCs - Reduction in overall indirect taxation is expected to boost consumption and thus drive credit growth, while GST rate currently charged on majority of services offered by lenders (Banks & NBFCs) at 18% are kept unchanged. Reduction in GST rates on select financial products is seen to create cross-sell opportunities aiding fee-based income. Easing inflation (induced by reduction in GST) increases probability of further rate cuts which could delay recovery in margin, though act as a catalyst to boost consumption led business growth.

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