Will insurance really become cheaper due to the GST cut? New plan of insurance companies revealed in a new report

GST on Health Insurance Premium: Kotak Institutional Research report states that insurance companies are thinking of increasing tariff by 5% to compensate for the loss due to input tax credit

GST on Health Insurance Premium: In the 56th meeting of the GST Council, 18% GST on premiums of health and life insurance policies has been removed. That is, now there will be no GST on health and life insurance. This was being demanded for a long time. People were hoping that by removing 18% GST on premium, taking insurance will become cheaper.

However, a recent new report has dashed this hope of the people. In a new report by Kotak Institutional Equities Research, it has been told that insurance companies are thinking of increasing their tariff by 5% to compensate for the loss due to input tax credit. This may increase the premium instead of reducing it.

Companies will balance the increased expenses

The report states that increasing the tariff will help companies compensate for the loss of input tax credit. Let us tell you that earlier insurance companies used to take advantage of input tax credit (ITC) on their operational costs on agents' commission, reinsurance and advertisements. Now with the removal of GST, companies will not be able to claim ITC. This will increase their expenses, to balance which they will have to resort to tariff. That is, the policy rates will be increased.

Let us tell you that in the GST system, insurance companies are given a special facility. Under this, the tax paid on the expenses incurred on the operation could be deducted from the GST collected from the customers. After this, the tax that was left had to be deposited to the government. That is, due to ITC, there was not much burden of tax on the companies, but if there is no GST, then how will the tax account be balanced. To balance this, companies can increase the premium rates so that their loss is reduced or not.

Demand of policy holders will increase

However, the report also says that with the GST rate cut, the demand for insurance premium will increase due to its becoming cheaper by 12-15%. However, what will be the benefit of GST relief if the premium increases! The exemption on insurance premium is going to be implemented from September 22, 2025.

According to the report of Kotak Institutional Equity, Star Health can increase its tariff by 1-3% after the GST exemption and ITC benefit ends. On the other hand, Niva Bupa can increase it by about 4%. In this way, policyholders will see almost no impact of GST rate cut on insurance policy.