How the removal of GST on health insurance premiums affect insurance companies and their stocks?
I read that the Indian government has removed GST on health insurance premiums, is it right? But people are saying that this may not really make premiums cheaper for customers. Why is that?
If costs don’t go down, how could this move still impact insurance companies’ profits and their stock prices?
I’d like to understand whether this change could create any long-term opportunities or risks for investors in the insurance sector.
Yes. The GST on individual health and life insurance premiums in India is being reduced from 18 % to 0 %, effective from 22 September 2025.
However, despite the tax cut, premiums may not drop by the full ~18 % for customers. Why so?
- One major reason: insurers lose the ability to claim input tax credit (ITC) on services and expenses due to the nil-GST status. To maintain their margins, some insurers may raise base premium tariffs by 3-5 % to offset that cost.
Let me explain to you what ITC is.
Earlier, when GST was 18%, insurance companies collected that tax from customers and paid it to the government. But in return, they could claim “Input Tax Credit (ITC)” — meaning they could subtract the GST they had already paid on things like office rent, software, advertisements, and other services.
For example, if an insurer paid Rs. 10 lakh GST on expenses and collected Rs. 50 lakh GST from customers, they only needed to pay the difference (Rs. 40 lakh) to the government.
Now that GST is 0%, insurers no longer collect GST from customers. But they also lose the right to claim ITC. That means the Rs. 10 lakh GST they pay on business expenses becomes a real cost instead of being recoverable.
To cover that extra cost, insurers may slightly increase the base premium (by around 3–5%) so that their overall profits don’t fall.
For people who invest in insurance companies, this change has two sides.
- Removing GST can make health insurance a bit more affordable. This is why more people might start buying policies. That’s good for long-term growth.
- But on the other hand, since insurers can’t claim back the tax (tax credit) they pay on their own expenses, their costs may go up. To manage this rise in cost, they might raise premiums slightly, which could affect profits.
So, while sales might grow, profits may not increase by much (profitability margin will come down).
Profitability is something that stock investors watch very closely. A dip in profitability is something that investors do not like at all.
Disclaimer: This content is for informational purposes only and should not be considered investment advice.
