New GST Rules For Insurance Policies: The GST Council has abolished GST on health and life insurance premiums. This change will come into effect from 22 September 2025, which will make it cheaper and easier to take insurance.
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GST Removed on Health Insurance: Giving a big relief to the insurance customers in the GST Council meeting, the government has completely abolished GST on health and life insurance premium. This change will come into effect from 22 September 2025. Earlier 18% GST was levied on these policies, but now it will be cheaper and easier to take insurance.
Suppose someone took an insurance premium of Rs 100. Earlier he had to pay Rs 118 for this, including Rs 100 as basic premium and Rs 18 as GST. Many times this GST made insurance expensive for most people. The government was getting suggestions for a long time that to make insurance cheaper for the common man, GST should be abolished. Finally, now personal insurance plans like ULIP, term plan and family floater have been made GST free.
When insurance companies used to charge us GST, they also had to pay GST on many expenses, such as office rent, marketing, agent commission, etc. For example, if on a premium of Rs 100, the company pays Rs 40 as office rent, Rs 10 on electricity, and Rs 30 as agent commission, then the total cost is Rs 80 (if there is no GST on electricity, then only 70 will be charged). GST is levied on these expenses at the rate of 18%, i.e. total 18%×70=Rs 12.6. Insurance companies used this as their Input Tax Credit (ITC).
What is Input Tax Credit?
Input Tax Credit (ITC) is a system in which a company can deduct the GST paid on its expenses from the GST collected from its customers. For example, if a company has paid GST of ₹100 on its office rent, marketing or agent commission and has collected GST of ₹150 from customers, then it will deposit only ₹50 to the government. The remaining ₹100 is credited to it in the form of ITC. This avoids double taxation and provides relief to businesses, which also keeps the prices of the product or service under control.
If GST is zero, will ITC also not be available?
Now that GST on premium has become zero, companies will not charge any GST from the customer. But now they will not be able to adjust the GST (Rs 12.6) paid on their payments (such as rent, commission etc.) through ITC, this expense will come directly on their pocket.
How much benefit for whom?
With the end of GST, ITC has also been removed, but the extra expense that can be added to the premium will be less than the GST of the old system. Now it will be cheaper for the common man to take insurance and most importantly, there will be no tax on social security schemes like health and life insurance.
