GST Council Meet: Insurance Companies Face Profitability Pressure as Rate Cuts Likely

The GST Council Meet, chaired by Union Finance Minister Nirmala Sitharaman in New Delhi, has brought insurance companies into sharp focus. On the agenda is a possible restructuring of GST slabs, which could reduce taxes on health and term insurance premiums. If approved, policyholders may benefit from lower premium costs, but insurers could experience short-term stress on profitability.

#WATCH | Delhi: After the 56th GST Council meeting, Union Finance Minister Nirmala Sitharaman says, "In common man and middle class items, there is a complete reduction."

Items on which GST has been reduced to 5%- hair oil, toilet soap, soap bars, shampoos, toothbrushes,… pic.twitter.com/jaHxlmsVbS

— ANI (@ANI) September 3, 2025

GST Council Meet: Health Insurance Premiums May Get Cheaper

Currently, health and term insurance policies attract 18% GST. The GST Council Meet is considering major rationalisation by replacing multiple slabs with just 5% and 12% categories. This move could make insurance products more affordable for millions of households.

According to HSBC Securities and Capital Markets (India), premiums could drop by as much as 15% if GST on health insurance is fully exempt. A 6% reduction to bring policies under the 12% slab would also offer cost relief to policyholders.

ALSO READ| New GST Rates September 2025: Council Likely to Roll Out Revised Tax Slabs by Sept 22

Impact on Insurance Companies and Profitability

While customers may benefit from lower premiums, insurers are expected to face immediate challenges. The HSBC report noted that insurance companies may see a 3–6% hit on combined ratios in the retail health segment. This pressure will stem from the slower repricing of renewals, which could take 12–18 months to reflect the new GST structure.

Standalone health insurers are predicted to be more vulnerable compared to multi-line insurers, given their higher exposure to retail health. Expense ratios and the availability of input tax credit (ITC) will also play critical roles in determining how the rate cuts affect overall profitability.

Revenue Shortfall Concerns for the Government

The potential exemption or reduction in GST rates could result in an annual revenue shortfall of $1.2–1.4 billion from insurance premiums, the report warned. Policymakers must weigh the benefits of affordability for consumers against the possible loss of revenue and its impact on government finances.

Long-Term Growth Outlook for Insurance Sector

Despite near-term profitability concerns, analysts believe GST cuts will strengthen long-term demand for health and term insurance products. More affordable premiums are expected to encourage wider adoption, supporting financial inclusion and expanding market penetration. The report concluded that while the transition may cause short-lived disruption, insurers and consumers alike will benefit in the longer run.

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